cliver_barwell3.jpg

Long Term Care

From 1911-15, 63% of people in the UK died before the age of 60, by 1999 this had dropped to just 12% (Source: House of Commons, A century of change: Trends in UK statistics since 1900, published 21 December 1999).  It is also estimated that one in two women and one in three men who turn 65 will require some form of Long Term Care  in later life (Source: Caring for the Very Old: Public & Private Solutions, Prof Howard Glennerster, October 1996).

From these statistics it is unsurprising that the Government is concerned about the impact on the public purse of the cost of long term care and that much of this is thrust back on the individual.  Unlike the burden of Inheritance Tax, there is no generous 'nil rate' threshold and the cost is 100% of savings not just 40%!

In this brief article it is not possible to go into the rules and regulations regarding long term care payments, but there is an excellent article on the Help the Aged website to which this is a link http://tiny.cc/LTC.

In the 1990s a number of Providers came out with long term care plans which were insurance policies that would pay out upon an inability to perform a number of key Activities of Daily Living such as dressing, feeding, bathing, and so on.  However, there was very limited enthusiasm for these and most of them have since been withdrawn.  Consequently, the financial planning approach to long term care is very much one of making the most use of the financial resources available in the event of formal care being required.

An area of recent development in financial services has been the “Impaired Life Annuity”.  An annuity is a promise from an insurance company that, in exchange for a lump sum, they will provide a guaranteed income either for a specified period or for life.  The level of the income depends upon the returns the insurer expects to make on the lump sum and the life expectancy of the investor.  As the name implies, an Impaired Life Annuity is an annuity paid for life to someone suffering from ill health which may affect their life expectancy.

A version of this type of annuity can be used to provide for Care Home or Nursing Home costs in a highly tax and investment-efficient manner.  Families have to weigh-up a number of issues before going down this route, however.  Effectively, when an annuity is purchased the capital is lost - there is an element of gamble for both the person taking out the annuity (the annuitant) and the insurance company paying the regular income.  The insurer is gambling that the annuitant won't live as long as they have budgeted for and the annuitant is gambling that they will live longer!  So the issue is, do you buy an annuity and accept the risk of losing that money or do you pay the care costs yourself and hope the funds outlast the patient?

So, in conclusion, if you are concerned about the future impact of long term care costs or you have a relative already needing long term care , there may just be a solution!