Cruel to be kind: Time to tell clients State help won't be enough

Clive Bolton, ‘at-retirement’ director at Aviva, reveals just how unprepared consumers are for later life and how good financial advice could be the solution...

The cost of long-term care is a very hot topic at the moment. Official statistics show the UK has an ageing population and that people are living longer, which is naturally good news, but at the same time the average retiree’s pension pot will not be able to provide for both the retirement they hope for and also possibly funding long-term care costs.

With the Dilnot Commission estimating that one in four people are likely to require long-term care in retirement, this will put huge pressure on the State because – even discounting current economic conditions – the UK simply cannot afford the spiralling costs of state pensions and long-term care. Much has been made of this in the media and the Government has indicated it is acutely aware it needs to implement changes that address this.

However, new figures from Aviva show whatever changes the Government makes, it is going to have to work hard if it is to encourage or compel people to plan ahead for later life. New research in Aviva’s seventh Real Retirement Report found that, despite the fact that under the current system the State is unlikely to help those with assets greater than £23,250, a massive 70% of over-55s believe being made to pay for the cost of their own care is unfair. And the majority (53%) admit they have no firm plans in place to meet care costs.

Clearly, part of the problem that needs to be addressed is that people just do not understand the complexities of the current system and mistakenly assume they will be looked after by the State should they require long-term care – in fact 14% continue to believe the Government will cover all the fees.

The research confirmed this, finding almost half (47%) of over-55s say there needs to be clearer information on the topic, with 46% saying the Government should set clear universal care standards and 36% saying they would like to see a single Government department responsible for all care issues.

Most clients would be aware of the growing expectations for longevity, and this is great news for those with substantial assets as they will be able to spend longer in retirement and will have the wealth to live comfortably. Unfortunately, very few over-55s actually have substantial assets and even less are aware of the potential costs they face from long-term care.

The Real Retirement Report found that over-55s are not unrealistic about the costs of long term care. Indeed they estimate it is likely to cost £30,171 per year to cover standard care in a retirement home, and actual current figures from Prestige Nursing + Care show the average cost of residential care is £25,953 per year. But despite this they are still not ready to fully accept they may have to contribute a significant amount, as even the over-55s who are aware they will need to finance at least part of the costs of long-term care say they would be prepared to pay just £3,610 on average for a lifetime of long-term care.

These new findings from Aviva add further weight to one of the options to address this problem the Government is currently considering. In July the Commission on Funding of Care and Support – the independent body chaired by economist and broadcaster Andrew Dilnot which was tasked with reviewing the funding system for care and support in England – made its recommendations.