Deepak Jobanputra explains what advisers need to know about the ageing population
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The number of people in the UK aged 65+ is set to increase by 2 million by 2020, and an increasingly ageing population means the issue of later life care is significantly vital.
But it is not just young people who are living longer. The older you are now, the higher your life expectancy is. This is because older people have managed to survive conditions such as cancer, so could be considered to be healthier and stronger.
An ageing population means that we are seeing an increase in the number of people suffering degenerative illnesses
An ageing population means that we are seeing an increase in the number of people suffering degenerative illnesses. These are illnesses that get worse over time and for which there is no cure. These degenerative illnesses are particularly prevalent at older ages, for example dementia (see chart, below).
It is estimated that 1 in 4 aged 65 will require long-term care at some point in their lives. While the new Care Act goes some way to legislating towards the UK’s future care needs, the realities of an ageing population and dwindling government resources mean relying on the state alone is a risky strategy.
There is a misconception that the state will pay for care – 33% are under the impression that the government will pay for most or all of their care needs. The NHS is perceived as the default care provider when no assets mean people cannot pay for care needs.
While many have given thought to what may happen when they die, most have not fully considered who will support their later life care needs. Men appear to be more likely than women to consider what legacy they will leave behind, but are less likely to have considered their later life care needs.
Paying for later life care has typically meant sacrificing liquid and physical assets, or families taking on the financial burden. This financial burden continues at end of life where families are faced with funeral costs.
Most people underestimate the cost of care. Property sale is default means of paying for care among home owners. Not surprisingly, 74% of people would prefer to be cared for in their own home.
But this will come at a cost as it is likely that alterations to the home will be needed as well as paying for home nursing. Some 55% of people have had experience of caring for a person in later life, with the large majority of that being for a parent.
They are seeing first-hand the impact degenerative illnesses such as dementia have on the individual/family around them and appreciate the need to plan ahead for their own care needs. Many just don’t want to think about dementia. It is something they fear, or think, won’t happen to them.
Care and the government
To address the expected future rise in costs, the government commissioned Sir Andrew Dilnot to look at different funding options for social care.
The Dilnot Commission has since reported back to minsters and many of the recommendations have been accepted, including a cap on care costs due to come into effect as part of the Care Act.
The £72,000 cap on care costs, which has been delayed to 2020, is designed to limit the amount that individuals will need to contribute towards their own care costs, as well as help people better plan for the future. This is a welcome move forward in helping to manage care costs.
However, there are a few points to clarify about the cap. It applies only to the costs of providing care itself. The costs of food and accommodation accrued during a care home stay would not be capped, so they still need to be funded somehow.
In addition, the costs of care will vary between local authority – meaning if you live in an area where the rates are lower, it may take several years before you even reach the £72,000 cap. In fact, 92% of men aged 85 going into care will not benefit from the cap.
How can the insurance industry help?
Paying for care will need to come from a combination of state and personal resources, and that is where insurance companies need to play a part. There are already products, such as equity release and immediate needs annuities, that can help pay for care at the point of need.
But many in the industry will agree the bigger challenge is trying to pre-fund some of our future care needs. Vitality is the first provider to launch a new solution in the UK, allowing people to draw down on their whole of life cover to help fund some of their later life needs.
A number of other providers are also expected to bring something similar to market, demonstrating that the insurance industry is indeed beginning to rise to the challenge on care.
Opportunity for advisers
Care needs are a critical consideration in financial planning. With the costs of care increasingly falling on individuals, they could have a serious impact on a client’s savings and how much they leave behind to their dependants.
New products help advisers open up a conversation about care needs by exploring if clients would like the flexibility to draw down on their whole of life cover if they become less able to look after themselves.
In fact, a poll from the Protection Review suggests that many advisers agree – 75% believe these new later life products will help grow the market.
As an industry, we have a long way to go in raising awareness on care, as well as help plan for these needs using new products and better planning. But it feels like we are making some real progress even before the new Care Act has come into effect.
Triggers to taking out protection
• Parents experiences of old age
• Family and friends experiences of old age
• Children getting older/leaving home
• Life stage changes
• Deterioration in health
Deepak Jobanputra is deputy CEO of VitalityLife
Bill broadened to include insurable interest in cohabitants, group schemes and trusts
Thursday 4th October at The Hilton London Bankside
Early conversations about end-of-life care are crucial to ensure individuals living longer can make their own decisions, however right-to-die approaches vary all over the world
Group life, critical illness and income protection business bought from Munich Re