The Problem
It’s a well-known fact that the UK population is ageing and as the population ages, a significant and growing proportion is requiring long term care. This issue is now roughly affecting a quarter of the population (or a fifth of men and a third of women*). The ONS suggests that by 2041 there will be double the number of over 85s living in the UK which would also suggest this is set to rise profoundly. At this current time there is no known way of predicting who this could affect so advisers should assume that all their clients run an equal risk of one day requiring long term care.
However, whilst it’s a growing issue that increasingly cannot be ignored, evidence suggests it is. Over two thirds of the over 75s haven’t ever thought, discussed or planned for the possibility of long term care and even if they have, 93% of over 55-year olds have still not made any provision for that possibility**.
This problem is compounded by the fact there is also a lot of confusion about the direction of legislation, the provision of care services and how they are paid for, resulting in most people avoiding doing something as they simply don’t know what to do. Only some are even aware of the fact that state provision is very restricted and that services are tightly controlled.
So even people with the best intentions don’t know when, where or how to start their planning but we do know that 88% are shocked by how much long term care will cost and 75% are surprised to find out how little the state will assist whilst also quickly becoming aware that the area is very complex to understand and more than two thirds of people who had to help their parents with long term care admit they found it hard to find the right information**.
To underline the problem, no major organisation is suggesting the care environment is going to improve and indeed most say it is only going to get worse.
The Opportunity
“Choice, not chance, determines your destiny” – Aristotle
So, if all clients run an equal risk of one day requiring long term care, the most important thing to assess will be how much it will potentially impact on them.
If your clients do ever need long term care, it is unlikely that if they either use the services of a financial adviser (which they do!), or if their estate potentially faces an IHT liability, that they would be assisted by their local authority, as they would fail their Means Testing regime (basically it implies they are too wealthy with the threshold here being so much lower than the IHT threshold, at only £23,250).
If they do therefore need to pay their own care fees (which is most likely they will) this could easily cost anything from £40,000pa to £70,000pa* and it could be for a range of timeframes (but the average is 2.5 years currently).
If they don’t have guaranteed “passive” incomes (e.g. from their state pension, investments, private pensions or an annuity, etc.) that matches that level of fees, you can consider your clients to now have a “pre-care fees planning shortfall”. If this is the case, you should make them aware of the fact.
If they do have this shortfall there are two things they can do about it:
Ignore the problem and if those clients do ever have a care need they will need a solution that works “at the point of need or crisis”. This typically is quite restrictive, is driven by medical assessments, is notoriously expensive and leads to less that optimal client outcomes.
Alternatively, they can accept this fact and (if in a position to) make pre-provision against the potential cost of future care. This will offer a greater range of flexibility, as and when they ever face long term care and allow them greater control.
In my work at Ingenious, we talk to financial advisers and their clients every day as an experienced asset manager and we even provide a specific later life service that simultaneously allows clients to make
- deliberate financial provision to assist in filling the gap that is their “care fees shortfall” should they ever require long term care,
- and also gives them access to the services of the UK’s leading independent care advice firm, free at the point of use, to both optimise the service the client needs and reduce costs.
Clearly the latter benefit is precisely included as one cannot underestimate the peace of mind it will deliver to clients knowing they will receive experienced, competent advice and that will remove this burden from them and their children. The service also has the added benefits of allowing clients to grow their investment in a modest but relatively predictable way, and should they live for two years beyond the point of investment, it also means that any remaining funds left in the investment after their death should be fully IHT exempt. So it covers off many specific later life planning concerns.
Summary
This area of later life planning is of course of increasing interest as there is a huge planning gap around inter-generational (wealth transfer) planning and therefore presents a big opportunity to access potential beneficiaries through demonstrating sound financial planning and the value of clear, knowledgeable and independent advice.
This is why Ingenious in conjunction with other specialists in the area like the Society of Later Life Advisers (SOLLA) and independent care consulting firm, Grace Consulting, plan to run educational sessions for advisers to both increase their awareness of the issues across the area and fully understand the opportunity it provides advisers.
