Best Intentions for Britain’s Long Term Care Market
A Statement of Intent signed by the UK Government and the Association of British Insurers earlier this year will go some way towards creating better conditions in which to grow the country’s Long Term Care (LTC) market after the passing of the Care Bill 2014 in May.
Let’s put things into context, however. The agreement is a forward-looking document that identifies areas for further research. It follows a rapid review exercise to identify product ideas that are essentially quick wins. But other stakeholders, especially financial advisors, are needed to provide different perspectives on what products could be developed.
Wider input is important because I don’t believe that a "one size fits all" product solution will work in the UK.
With defined contribution pension schemes replacing more generous defined benefit arrangements, it seems likely that future levels of pensions will be lower. People are likely to opt for level pension annuities (if at all) and call on their liquid savings, state welfare and the equity in their homes to purchase care directly or via Immediate Needs Annuities.
This is why the UK’s public at large needs to be made aware of some stark realities:
- The State will only begin paying for care once a person has hit the new means-tested £72,000 assets threshold.
- The tariff that people pay may not correspond to that paid out by their local government authority.
- People could still conceivably pay more than the asset threshold for their care.
- People will still be responsible for their food and accommodation.
- The National Health Service will not make a contribution, and without the necessary funding in place, a patient's family may have to stop working to support him or her.
It’s this awareness that has driven the emergence of private markets in Germany and Singapore to provide additional funding to plug gaps in State welfare provision.
The rules around benefits entitlement in the UK are complicated, and in order to make the right decisions, more families need to get professional advice. This is why the industry has been lobbying to introduce a requirement in the Care Bill 2014 for local authorities to point suitable self-funders towards (regulated) financial advice.
At the same time, the rules around the means test should be changed to provide incentives for the public to set aside funds for their social care funding, via an insurance product or by earmarking a portion of their savings. Currently, the means test rules encourage people to spend down or pass on their assets to their children in order to benefit from State funding.
There’s still a lot of work to do to create a functioning LTC market in the UK, but I’m confident that a solution will eventually be found that will serve as an example to other countries battling with the same demographic trend.