Long-term progression

Retirement Planner’s Helen Morrissey also chaired an online Conjecture debate on long-term care.

Industry experts on the panel were Chris Horlick, Henry Featherstone and Nick Tyler.
View the debate online at www.interactivefinancialadviser.brighttalk.com

I want to start off with the first of our interactive votes. The first question that I am going to put to our audience today is are you currently providing long-term care advice? Your options are yes, it is a significant part of my business; yes, although it is a relatively minor area for me; the third option is no.

What do you see as being the principal regulatory changes that have influenced the provision of long-term care?

Chris Horlick: What we know is that in government, we have had all sorts of intervention which has culminated in no change at all. We had the Green Paper and White Paper on creating a national care service and indeed legislation on creating the Personal Care at Home Act. We have also  had the launch of the new Social Care Commission so there has been a lot of activity, but no change.

For financial advisers the issue that will have the biggest regulatory change is the retail distribution review.

Chris mentioned earlier on about the Social Care Commission. Henry, what impact do you think this funding commission is going to have on the whole long-term care arena?

Henry Featherstone: Well I think it rather depends on what your view of the Coalition is and the purpose of setting up the Commission. You could think this is an attempt by Government to kick the issue into the long grass again. We have had nine or so significant reports in the last 15 years.

Or you could think that the Government is going to be pretty radical. There is a timetable for a White Paper. There is a timetable for legislation. So, I think after much to’ing and fro’ing for the last 15 years, there is a real sense that we might see some action.

Chris, what would be your wish list for the findings of the Commission?

Horlick: I think the minister has been very clear that he is not going to attempt to seek consensus as it is probably impossible to achieve. He is trying to reach a settlement and that is slightly different. Clearly it is not for me to set government policy. I think an approach that they should take, and probably will take, is to view different cohorts of age groups. I think it would be very difficult to come up with a one size fits all solution. I am 99% certain it will be a mixed economy solution, so that there will be, as there is today, private funding and state funding.

Whatever they do come up with needs to be sustainable, fair and above all, transparent. The biggest problem with the system we have today is that nobody understands it and there is very little help for families to guide them through.
 
Nick Tyler: Unfortunately at the moment, it is difficult to plan for this need and very few people do so.  Clearly they hope it is something that isn’t going to happen to them, so there is an education piece we all need to be involved in.

Whatever does happen, we just want clarity, transparency and absolute honesty so people can plan knowing exactly what they will or won’t be entitled to. 

Horlick: I think the fact the vast majority who end up going into care believe that in some way the state will provide is the biggest issue we face. 130,000 people a year are going into residential care, 41% of those are going to be entirely self-funding, and they don’t know until it happens to them.

Featherstone: Can I take that a little bit further? We think the Commission should actually be excluded from looking at a tax funded option. Part of the uncertainty everyone has been talking about has been built around what has happened with free care that was recommended in the Royal Commission about 12 or 15 years ago. As a result of that, the insurance and assurance market has collapsed, there has been uncertainty. Why on earth would you want to start saving for something that you think is going to be provided by the state?

We have discussed here that there is a lack of financial advice, particularly for self-funders. Why is this and what is Partnership doing to try and ease this situation?

Horlick: I think it comes back to the fact that this is generally a distress purchase but it is difficult to get more information. However, short of buying a home, this is probably the largest purchasing decision that most people will make. To do that in the absence of any financial advice at all is absolutely crazy and I think both care homes and local authorities have a role to play.

You then come on to another problem; there are not enough specialist advisers in this space. The value of the advice in this area, given that nobody knows anything about it, is much greater than it is for almost any other financial services product I can think of.

We are running endless seminars to attract more advisers into the space, we are working with central and local government to try and demonstrate how independent financial advice can save significant sums of money. Self-funders who fall back on the state probably cost almost £1 billion a year, to central government and very often, they only fall back on the State for the lack of proper financial advice.

Care fees and payment plan rates are definitely more expensive than they were five years ago. Is this due to elderly people living longer when entering care, annuity rates in general, or a mixture of both?

Horlick: The short answer is that it is a mixture of both. At a time of generally low returns, clearly annuity rates are going to be affected. All I would say is the care annuity does what it says on the tin.  It caps your liability and enables you to leave any residue of funds to your estate.

Tyler: You have got to bear in mind that for the people who are in care, their children are probably themselves either in retirement or coming up to retirement. So the peace of mind element of what a care plan can provide is different to each family. As advisers, we have to be aware of that and we shouldn’t underestimate it. 

Horlick: The risk of capital depletion is very real and the worst case I have ever come across is £670,000. A couple went into care, the lady died in care after two and a half years. Her husband lived on in care until he had spent £670,000. Had they annuitised, we estimate we would probably have charged them about £310,000. Now clearly we would have lost a lot of money but that is what insurance companies are there for. We take the risk.

If we can go on to the first of our online voting results? The question we put to our viewers was, are you currently providing long-term care advice? Of those who gave a response, we have got 18% who say yes, this is a significant part of my business, 36% said yes, although it is a relatively minor area for me, and then 45.5% actually said no, it didn’t provide any part of their business at all.

Tyler: Well, knowing what this debate is about, I would have thought the figures may have been the other way around. I think it is a bit of a shame because it is a rewarding area to give advice.

It is something we should all be planning for and I think the people in the financial advisory sector who don’t understand this area, are probably missing a golden opportunity. 

Featherstone: It rather fits with the polling advice when you talk to the general public about whether they are putting money aside. We have looked at the various polls and most people say they are not putting money aside. Anywhere between 87% and 61% of people say they are not making any provision. The number of people already doing so is anything between 5% to 14%. And whether people would like to do so, may be 6% to 20%. 

Tyler: I think that is understandable because a comment I make regularly is that it isn’t something people look forward to planning.  We can all look forward to a long and enjoyable retirement, I have never yet met anybody who is looking forward to the day they go and live in a care home.

So I can understand that to a certain extent but I think it is an awareness scenario. There are a number of steps people can take – lasting powers of attorney, the way that wills are structured that can come in before a need for care arises. As financial advisers we have an obligation to inform people of these situations.

I am going to set off the second of our online votes. The question is, what are the key problems in selling long-term care products? The options are the lack of knowledge and interest in them, the cost involved, and the third option is the complexity of the products. We have spoken about there not being many advisers involved in the long-term care market, why do you think advisers should get involved in this area?

Tyler: The advisers that have been with us over the years have probably, without exception, said it has been the most rewarding work that they have had in the way that they deal with, and work with, families in crisis. The thanks we get from the families has just been unbelievable – we all get a lot of gratification from that.

If there was an adviser listening in today thinking of going into this market, what would you say are the key elements that they would need to be successful?

Tyler: A great deal of integrity and understanding. Our experience is that you genuinely feel you are the first person this has ever happened to. If you can go in as an adviser and offer reassurances and peace of mind even before you start getting involved into the financial nitty-gritty then that’s important.

The most tragic thing is seeing clients who have actually run through their capital. We see a number of those cases that come through to us and they have gone through hundreds of thousands of pounds and are left with a few thousand; that should never happen.
 
Featherstone: At the moment the financial advice section and what the State provides are completely divorced. I hear from people when they go into care homes where we are seeing the junction at the Local Authority level and at the care home level. That is where the crisis falls and everyone expects the State to pick this up. If there was going to be any involvement from the State, it should be about signposting people to the most appropriate place, rather than saying ‘well, not us guv, this has never been part of the NHS or social care system’.

So I think it is closer partnership working between what the State actually does and the role of government, and what the private sector can actually provide. This is a private solution and always has been.

We put the question to our audience – what are the key problems in selling long-term care products? 33.3% of the audience said it was lack of knowledge and interest. 58% said it was the cost involved, and 8.3% said it was the complexity of the products. Would you like to comment on that at all Nick?

Tyler: Well the products themselves are quite simple to be honest. The difficulty around the products is how they interact with other entitlements people may have.

The biggest issue I think is none of us advising in this area want to get it wrong. But the only time you can guarantee getting it right for your client, unfortunately, is if you knew the day they were going to die.

The other thing is that people’s needs in care can change so you have to understand the implications of that with whatever products you put into place as well.

If we look at how the long-term care market is set to evolve. What trends are likely to most influence long-term care provision over the next few years?

Featherstone: I think the outcome of what the Commission finds is going to be critical. 
I think all the evidence coming out from what Andrew Lansley is saying and the direction for the Coalition is going to be some form of co-payment between the State and individuals. So the level of uncertainty that we have had is going to go. The only question is, what are the mechanisms going to be for topping up your care? So I think the key driver is going to be political.

The potential market is quite substantial, anything up to £13 billion, £15 billion. I think the politics are absolutely key.

Then we have the fiscal crisis, I think that is going to actually very much temper what the Coalition Commission can actually consider. That is key in their terms of reference already. 

Horlick: I wouldn’t be here if I didn’t think it was going to grow, and I am working very hard to try and help it grow. What I would say also is the latest data that we have available, which is the ABI first quarter stats, demonstrate that care annuities actually grew by 25% in the first quarter of this year. So in an environment where most insurance companies are not growing significantly, that sort of growth is quite attractive. Is it attractive enough to attract other insurers in? Not until the lid comes off I would say. But that is what we are trying to do.

When asked how much long-term care business do you anticipate doing, the responses came back as 88.9% of advisers say they anticipated doing more business. 11% said the same and none of them said less. 

Horlick: Well I am absolutely delighted. What can I say? That is terrific and if there is anything we can do to help those advisers, they should get in touch with us; we would love to do that.