Blog: 2plan's Smallwood on long-term care

Chris Smallwood, CEO of 2plan Wealth Management, looks at how advisers can help clients prepare for their care needs in old age.

The Government’s controversial Social Care Bill, recently debated in the House of Lords, promised to provide free care at home for 400,000 elderly people in the most vulnerable category.

While on the face of it, this sounds like encouraging news, critics say the funding for this will involve more than £600m being diverted from the NHS’s existing budget. And, to compound the misery, it is now becoming abundantly clear that many long-term care (LTC) insurance policies have scaled back benefits significantly in recent years, leaving thousands, possibly millions more elderly people exposed.

Shaping the future of care

According to Sir Derek Wanless, who conducted an in-depth reviews of the UK’s care system, by 2026 the number of people over 65 with a dependency will rise by 53%, and the number of people aged over 65 will rise from 8.17 million in 2007 to 11.59 million in 2026.

The publication of the recent Government green paper ‘Shaping the future of Care Together’ indicated steps were being made towards formulating a plan. But it doesn’t take much of a sceptic to conclude that the ideas may well stay stuck on paper, without any real chance of making it to the point where they help the people that truly need it. So, once again, it appears the burden – some would say responsibility – to fill this gap will fall squarely on the shoulders of the professional financial adviser.

As advisers, we see the direct impact of decisions that our clients make about their future and we have a responsibility to ensure those decisions are made in the most informed manner possible. Also important is the that options presented to them will meet all their needs in the years ahead.

Under the current regime, anyone with assets above £23,000 (April 2009) has to use their own savings to meet the cost of care. Those who have saved are not rewarded for their prudence, because their assets are used to meet the cost of their care in full, and this can prove expensive. For example, a 10-year stay in a care home from 2010 could cost more than £285,000.

While immediate care annuities can be appropriate for some clients in the right situation, many are reluctant to consider them, because although income may be secured, capital is spent.

Developing a detailed financial plan that combines a range of income solutions can often be the best alternative to help clients to meet their objectives, while balancing the needs of all involved. This can be achieved by using a combination of deposit accounts, immediate care annuities and other investments.

The crux of the debate surrounding the proposed changes the Government is looking to implement is they must be clearly defined, so that those advisers assessing the options for their clients have a clear outline of what is needed to ensure peace of mind and financial security for the future.

Chris Smallwood is chief executive of 2plan Wealth Management