Examining the options for care funding
BY 2050 there will be twice as many people aged over 85 as there are today and one respected body, The Joseph Rowntree Foundation (JRF), says that spending on long -term care will need to increase fourfold to meet the need.
And this is only one comment from a report published last month by the JRF called ‘Options for Care Funding: What could be done now?’ The report sets out and costs a number of potential interim measures, which could support the framework for long-term care immediately, ahead of the Government’s green paper, which is due out later this year.
The author said: “Everyone, including the Government, agrees that the UK needs a new long-term care system but it may be a decade before a new system is in place. These reforms (i.e. those outlined in the JRF report) could quickly make a difference to older people and their carers struggling to cope under the present system.”
The proposed interim system solutions include one with a state-supported equity release scheme at its centre. The aim being to give the less affluent homeowners the option to pay for home-based care, by deferring costs until their home is sold.
The JRF proposes that this new scheme would be similar to the student loan system (allowing repayment later), thus enabling those who are asset rich — ie those whose only, or main asset, is their home — to tap into that wealth.
Equity Release schemes have been around for a long time but many of those whose equity in their home is £100,000 or less find such schemes expensive.
Part of the reason for this is that regardless of the amount raised from the property there are a number of fixed costs such as the legal matters and the cost of underwriting the negative equity guarantee.
There are other problems, such as the minimum amount that can be drawn down against the value of a property, which many agree needs to be much lower.
We also need clarity on what is treated as capital when it comes to working out what State help is available. And, because it is so complicated, many cannot afford the advice needed to sort it all out.
There are of course many other suggestions coming from the trade, as it were.
These range from the Government giving tax relief when a person can demonstrate that the money raised from a property will mean that they will not ask for any funds from the state, to suggestions that a USA style plan should be established whereby the state pays for some of the high costs of equity release, thereby ensuring that those with lower value properties can afford to use them.
Here in Northern Ireland such schemes have been difficult to operate as our house purchase and ownership laws apparently make it very difficult to set up.
Looking at the statistics for here, compared to south-west England for example, 21 plans were sold here in the first quarter of 2009 against 484 in south-west England.
So, perhaps it is time to start lobbying our political representatives about the legal anomalies that are creating such barriers for so many people here.
If you are interested in finding out more about the JRF Report there is a very good summary on its website www.jrf.org.uk.
Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website www.realwealthmanagers.co.uk