Equity release review

Why are we avoiding the care question?

Alice Watson

head of marketing and insurance, Canada Life

Understanding how you might pay for the cost of long-term care, or even estimating that cost, continues to be one of the great unknowns of later-life financial planning. While the much-talkedabout social care cap of £86,000 is currently due to be put in place in October 2023, it will only cover spending by the individual, with any taxpayer support not counting toward the cap. This disparity will likely create a new layer of confusion and uncertainty, hammering home the importance of seeking financial advice as early as possible in the process.

Worryingly, many people don’t expect to have to pay for care at all. Canada Life research has found that nearly a third of over-60s do not expect to have to pay for care, with 41 per cent also not expecting to need to pay for the care of a loved one. In contrast, the UK government estimates that three in four UK adults over the age of 65 are likely to face care costs in their lifetime, with one in seven likely to face bills of more than £100,000.1

It may be that the confusion and lack of clarity around who bears responsibility for paying for care is the reason why so many people are simply avoiding the question and hoping for the best.

For those who have thought about how they might pay for care, more than a quarter (27 per cent) of over-60s say they would use their state pension (down from 37 per cent in 2021), followed by 25 per cent who say cash savings (down from 35 per cent in 2021), and private pension (18 per cent).

Other ways over-60s expect to pay for care include:  14 per cent will be selling their assets (e.g., house)  13 per cent say they expect the government to cover the cost of care  nine per cent say they would release equity from their home  five per cent would use an inheritance

This reliance on the state and private pensions is particularly dependent on making sure you choose, or are able, to work until the state pension age, currently 66 and soon to be 67. However, we know that more than two-fifths of 55-to-66-year-olds have taken early retirement since the start of the pandemic.2 This acceleration in plans could have a significant impact on a generation of savers, as analysis from Canada Life shows accessing pensions before state pension age would on average reduce a pension pot by 59 per cent.

With retirement now lasting up to several decades, it’s vital for those approaching retirement to consider how they will fund the lifestyle they wish to live, and speaking with a financial adviser is a sensible step. This is where advisers have a crucial role to play in helping those in and approaching retirement to plan ahead. The possibility of having to pay for care is now a crucial part of retirement planning. Advisers will be able to help customers navigate the various options available – whether that be using their pension wealth, their property wealth, or a combination of the two – to plan ahead with certainty. M I

1 https://www.gov.uk/government/ consultations/operational-guidance-toimplement-a-lifetime-cap-on-care-costs/ operational-guidance-to-implement-alifetime-cap-on-care-costs 2 https://www.canadalife.co.uk/ourcompany/news/over-two-fifths-of-55-66year-olds-have-taken-early-retirement-sincethe-start-of-the-pandemic/