Retirement savers who are not taking long term care costs into account in their financial plans for their later years may fall into an unforeseen money trap.
Although new laws due to be passed set a cap on the cost of long term care at £72,000, the limit only applies to local authority care costs.
The problem for pensioners will be other care costs not paid by the local authority, says the study How Pensions Can Help Meet Consumer Needs Under The New Social Care Regime from the Institute and Faculty of Actuaries.
The elderly need to consider the sets of care costs –
- Long term care paid by their local councils
- Daily living costs
- Top-up care costs
Medical care at the point of delivery – whether that’s in the home, a care home or hospital should be free, but the others are paid by the person receiving care.
Safety net
The report calculates that although the £72,000 cap will apply to most over 85s, on average they are likely to pay between £140,000 and £250,000 on other care costs before they hit the local council threshold.
The figures are likely to vary according to where the pensioner lives and the type of care they need.
The study also reckons only 8% of men and 15% of women are likely to benefit from the £72,000 cap.
More women are set to qualify because generally women live longer than men.
The local council cap is designed as a safety net to stop care costs spiralling out of an individual’s financial control.
No solution
“The cap will not take the place of spending savings on care,” said the report. “Everyone needs to understand that careful financial planning is needed for their later years and if they expect free long term care, they will not necessarily receive it.”
The report goes on to explain that a third of men and a quarter of women aged 65 now should expect to receive long term care later in their lives.
However, the average disposable income for this age group is just £18,700 a year and well below the amount needed to fund long term care without a top-up from the sale of a home or other assets.
“A lot of people are in for a financial shock in later life,” said the report. “We have looked at pensions and do not believe any product on the market provides a solution. We recommend a new pension social care fund coupled with tax incentives could help many people meet the cost of long term care later in their lives.”
