Sixteen months have passed since the Royal Commission first made its recommendations on the funding ...
Sixteen months have passed since the Royal Commission first made its recommendations on the funding of long term care for the elderly. In that time there has been a sense of frustration and, in some quarters, anger at the Government's failure to respond with any degree of urgency.
The reality is that the cost of implementing those recommendations is just too high and the Government has been searching for a more affordable solution. So the question is: how much does it think it can afford and what does this mean in real terms to those in need of care?
The answer must partly depend on how high funding care for the elderly comes on the leadership's list of political priorities. Exploring this in a little more detail should highlight why IFAs should be discussing the implications of paying for long term care with clients that have reached, or are about to reach, retirement age.
Recommendations
In its report on long term care, the Royal Commission's main recommendation was that the State should pick up the bill for personal and nursing care, which includes help with personal hygiene, general mobility and feeding. Individuals who could afford to would have to pay for their own accommodation and their food. The estimated cost to the State is £1.2bn.
A minority report by two members of the Royal Commission disagreed with the main recommendation, suggesting that it was economically unfeasible. Instead, it suggested that the nursing element should remain free but all other costs should be met by the individual.
Sitting on the fence
It was clear from the start that the Government was lukewarm about the cost implications of the recommendations, and in March last year they called for a period of "informed debate". Since then there has been some debate but little positive action. As a result, many people have chosen to sit on the fence, delaying the decision to make private provision for care costs and are simply waiting for the Government to make an announcement.
Within the next month the Government's comprehensive spending review will outline its proposals which should clarify just where the line is drawn between State and individual responsibilities. This will be followed by a White Paper by autumn which should wrap up its final recommendations. However, we already have a good idea about what it is going to say.
Kite flying in the media is a popular political pastime and one way of testing public opinion on measures under consideration without having to make any commitment. A number of kites have been flown in the last six months on issues relating to funding long term care. They include:
l In December 1999 the Government set out a timetable for dealing with the question of funding care. Firstly, it wanted to explore if nursing care should be free "whether delivered in the NHS or private nursing homes". Media 'sources' also suggested that the Government was considering a narrower definition of nursing care than that recommended by the Royal Commission, so reducing the cost to the State and placing a greater financial burden on the individual.
l In January this year, it was suggested that £400m would be made available to ease the burden on middle class people paying for care. It was also suggested that the means test threshold might be raised to £48,000. The implication was that these measures might be introduced in the Budget - in the event, the Chancellor pledged a further £2bn to health but the question of funding long term care was not raised.
So, which way is the wind blowing? Can the Government afford to implement any or all of the Royal Commission's recommendations and what impact will any measures have on elderly people who need care now and in the future?
The Government seems to have dismissed the personal care option on the grounds that it is too expensive. However, there are a number of ways that they could fund this option if they chose to:
l Raise taxes. It is true that the Government has pledged not to raise the basic rate of income tax before the next election. But what is to stop it increasing taxes afterwards?
l It could use some of the £22bn it has recently secured from the sale of telecom licences.
l What about Gordon Brown's 'war chest' rumoured to contain several more billions of pounds?
So money could be made available if the Government really wanted to solve this problem at a State level. The indication is that it does not feel the State should pick up the total bill and that people should contribute a significant part of the cost if they can afford to.
Independent research shortly after publication of the Royal Commission report indicated that nearly two-thirds of Labour MPs (62%) wanted the Government to find ways of encouraging people to make their own provision for the cost of long term care. Even more (65%) believed that private insurance has a role to play3.
To a great extent, the Government's priorities seem, to be driven by public opinion and there are more pressing calls on the public purse as far as the elderly are concerned than relieving the middle classes of this particular burden - namely pensions and NHS treatment.
There is no well-rounded solution to the question of funding care which will satisfy everyone. The Government will shape its response to the Royal Commission to fit in with limitations imposed by the Treasury, as well as the other financial and social priorities on its agenda - and the geometry is different. It does seem inevitable that private provision to help fund the costs of long term care is part of the Government's financial solution and indeed it has said as much.
IFA action
What action should the IFA take now? If private provision is on the Government's agenda, it must also be on IFAs'. The question for the IFA is: where does a long term care insurance product sit in a portfolio?
These products are currently bought by people in their late 60s and early 70s when the first gloss of retirement has dulled and the need for this form of protection is accepted. However, there is no doubt that potential long term care costs should be considered as part of financial planning at the point of retirement and many would argue earlier still.
One of the problems identified with the sale of long term care insurance is that it addresses a need which most people do not want to talk about. Care in old age is usually associated with nursing homes and with extreme infirmity. No one likes to think about the point at which they are no longer able to go to the lavatory unaided.
The sale of these products does not depend upon frightening people into protecting themselves, either with images of a Bleak House-type nursing home or a demonised local authority forcing the sale of a sick person's house.
The real reason why these policies are bought and the reason why this market is set to grow substantially is that older people want to retain their independence just like everyone else. They take a positive decision to protect their freedom to choose what sort of care they receive and where they receive it. They cannot predict their future health, but they can remove any uncertainty about how they will be looked after if they ensure the funds are available to do as they choose.
In just the same way that retirement planning and inheritance planning minimise risk and remove financial uncertainties, long term care insurance helps to protect a client's asset base.
The majority of elderly people want to stay in their own home as long as possible if their health fails4. However, care at home is not just about health visits and installing a stair lift, it is about trying to maintain one's dignity. Maintaining a way of life costs more when mobility is impaired by ill health. Equally, there is always a price attached to the nursing home of one's choice - its location closer to family, better facilities or the added cost of a room with a view.
Government direction
Now we have an idea about which direction the Government is taking, the first step for an IFA is to think about those clients who they are currently helping with retirement or inheritance tax planning. What is the best way to introduce some of the issues raised here?
The second step will be to consider which of the long term care products available in the marketplace is going to be most appropriate.
Jacque Langford is head of retired market development at PPP lifetime care
1. Based on research by Professor Chris Hamnett of Kings College, London 1995
2. Based on actuarial calculations by PPP lifetime care, 1997
3. Research carried out by Business Planning & Research International, June 1999
4. Source: IFF Research, 1999
