1. The government's attitude to social care and what the law says
2. Examine the barriers/gaps in the market for potential care products and how advisors should approach this as part of a proposition
3. Discuss what would drive the long-term care sector forward
PRESENTER: Almost 190,000 more elderly, those aged 65 or over, will require care by 2035, amid a backdrop of rising costs and government cuts to funding in the sector. That’s an 86% rise according to the medical journal The Lancet. In this Akademia unit, we’re going to be looking in more detail at the issue, what provisions are on offer now, and how the industry could develop moving forwards. On the panel are Jennifer Gilchrist, Proposition Lead Design at Royal London, and Graham Duffy, Care Specialist from Just.
There are three key learning outcomes: the government’s attitude to social care and what the law says; the barriers, gaps in the market for potential care products; and how advisers should approach this as part of a proposition. We’ll discuss what will drive the long-term care sector forwards. But first up let’s go to Graham to find out how the state system works for social care.
GRAHAM DUFFY: Hello. We’re here today to talk about social care and the issues of funding such care, and more specifically those that have to self-fund their care, i.e. those that in broad terms have assets of more than £23,250. It’s become very topical especially recently, but it’s actually been an issue really for the last, over 20 years in actual fact. So let’s start off by looking at some of the numbers of people that are in care homes, and then move on to risks around longevity, and then moving on finally to the different ways that people may fund their care if they’re self-funding. So what we call the state of the nation is the number of people that are actually currently sitting in a residential care bed if you like at the moment. And here’s the breakdown of those figures.
So if you look at the state funded side, which is local authority and potentially the NHS, you’re looking at about 44%, about 172,000 people. If you then look at those that are funded by the local authority, so they could be people that haven’t got assets, but if you are funded by the local authority you’ll find that you are not going to be perhaps in the most palatial care home in the area, because the local authority will be providing that care for you and paying for it. So sometimes families provide a top-up, what they call a third party top-up to allow people to be in perhaps a more expensive home than the authority would provide, and there you can see the figure is about 12%, about just under 50,000. If you look at the pure self-funded residents, so these are people that have got more than, accessible capital of £23,250, again it’s about 44%, so about 172,000. And if you then add the top together, i.e. the top-ups, which can in the current climate be quite considerable, and you could be looking at a couple of hundred pounds a week, you’re looking at about 212,000 people, so quite a considerable number.
When we look at the numbers of people that - and it’s quite difficult to actually pin these numbers down precisely, but what we tried to do is estimate roughly the number of people that take advice - it’s estimated there are about 130,000 people that enter a residential care home each year. So what we tried to do is draw through that 44% of people that would be self-funding, and bear in mind the self-funding figure does seem to be increasing all the time, that would suggest a figure of going into a residential care setting of about £57,200. And do bear in mind this is just residential care, it’s not people that are paying for care in their own home, i.e. domiciliary care.
Now, when you look at advice, what we’ve done is assumed that those people that take advice about self-funding will apply for one of our products, the immediate care plan. We’re not for one minute suggesting it’s the answer for everybody, but you don’t really know what the situation is until you’ve got the terms and find out, the adviser finds out whether it will be suitable for you to recommend. You can see the figures, about 3,700 actually applications, this is not policies sold, so applications to apply for the care plan, which would appear to represent only about 7% of those 57,000 people going into a residential care setting.
So, on the face of it, it looks like around about 50,000 people are not actually taking advice. There could be others that are getting advice, but not necessarily applying for a care plan. It’s very difficult to get precise numbers on that. And of course I would stress again that the care plan is not going to suit everybody. So there’s a big mismatch between the numbers going in that are self-funded and those that are taking advice around that care funding. And it is a financial commitment if you’re going into a residential care home, and it’s costing, say, certainly in London and the South East, and any part of the country there can be expensive homes that are going to be in excess of £40,000 a year and literally upwards to £75-80,000 a year for some of the more palatial homes.
So that’s the position as we stand today. If you then look at the projected increase based on a report that was in The Lancet, there was a study done by the Cognitive Function and Ageing Study that suggested that by 2025, which is actually not that far away, there’ll be an additional 71,000 care home places will be required. If we assume that 44% of people will be self-funded, so having drawn that figure through, that’s an additional 31,300 people that are going to be coming into care homes on a self-funded basis by 2025, that will take the number of self-funders up to 88,500, which is a huge number of people. And that’s what we hope to achieve by getting financial advisers more involved in this market, and trying to reach more people that are self-funding their care, and get them to take advice around their options for funding that care.
The underlying issue I suppose when we look at, and there’s always something in the media at least a couple of times a week these days around people living much longer, which again organisations like, charities like Age UK would say it’s great news, it should be celebrated, which is true. But the issue you’ve got is that the longer we live, the more chance there is of having some kind of care need or a health need, healthcare need, social care or healthcare, and somebody has to pay for that care that’s going to be required. So that’s the issue you’ve got. So good news in some ways, but there’s a downside to it, the longer we live, the more chance there is of things going wrong.
If you look at the figures for 2016, the figure I tend to concentrate here on, on this screen, is that in 2016 the 1.5 million people aged over 85. And I use the 85 figure because that’s about the average age for somebody entering a residential care setting. Yes, obviously people have care needs prior to that age, but entering a residential care setting is around about 85. If you look at the project of that, and also before I move on you can see the centenarians, the people of 100 and over, has in 2016 reached about 14,500, and more and more people are reaching those ripe old ages. If you look at the projections, you can see that the 85s again is going to go in the next 23 years I think it is to about 4.3 million. So that’s a huge number of people that are potentially going to be entering a residential care setting. It’s the fasting growing cohort is in that 85 and over section.
The trouble is what is old in this day and age? And when you reach certain ages you think, when you’re younger you think that someone of my age is old, and that’s what my grandchildren think at the moment. But however as you get older you don’t think you’re old do you? So what is old in this day and age? It’s very difficult to work it out. And the other issue is this change in life expectancy, and taking it back over many years. If you look at the next screen on changing life expectancy over the years, what you’ll see is that a lady that’s 86 today, she was born in 1931. In 1931 when she was born life expectancy of a female was just under 63 years. But now she’s reached the good old age of 86 her life expectancy is actually still seven years, which will take her to 93. That means that’s 30 years longer than when she was born, so it’s quite difficult to get your head around those kind of figures.
The other issue there is is what I’d describe as the longevity challenge, which obviously in our profession we have actuaries that are working on these figures day in day out, but it’s that aspect that the longer we live, the longer we can be expected to live. So the day that we’re born there’s a life expectancy. So I think it’s currently 83 for females and about 79½ for men. But then you can see that when you get to 85 you’ve actually gone passed that standard expectancy as it might be described, and men then end up having a life expectancy of 91.6, and women go to 92.6. But then when you get to 90 that would be recalculated, and you’d go to 94.4 and 95. And then you get to 95 and it goes on to around about 98 each, and the gap closes between male and female life expectancy. So it’s very difficult to get a handle on how long somebody is actually going to live when they reach those ripe old ages.
The other aspect with self-funders, and I mean to be snobbish about this in any way, but self-funders do tend to live on average longer than those that are funded by the local authority, and therefore what you find is that people from wealthier backgrounds tend to live longer than those from poorer backgrounds. So that tends to show on average that people that are self-funding their care and perhaps had a more affluent lifestyle will live longer than perhaps somebody that’s funded by the local authority. So the average you might see would be say two years, overall, but self-funders live on average just about double that, just under four years.
If we look at the national variations across the UK, you’ll see that the first table in that box is the nursing care element. So the NHS is free at the point of need, so any nursing care that you’re having if you don’t qualify for the fully funded care, which we’ll touch on in a second, there is a contribution to cover the nursing care element of that care that you’re having. You have to be in a care home that’s registered to provide nursing care to get this: £155 in England, £148 in Wales, the contribution is £78 in Scotland, but we’ll look at the personal care aspect of Scotland as well, and £100 in Northern Ireland. So that’s a contribution to your nursing care element. On the personal or social care, the next line down, you will see that there are no contributions other than in Scotland, where there’s actually a contribution to personal care of £171 a week. And that’s why people describe it as free in Scotland, but it’s not strictly free, it is a much more generous contribution.
You’ve then got all the accommodation costs that always have to be paid by the individual, provided you’ve got assets. If you are going to be funded by the local authority you will see the levels there for the personal expense allowance varies between £26 and £28 a week or whatever the figure is. So do remember that if you are going to be funded by the local authority, that’s effectively all you’ll be left with for all of your personal expenditure. And then you’ve got the capital limits which are £23,250 upper limit in England and Northern Ireland, and £14,250 lower limit, which have been at that level for many years. Scotland, it has increased slightly. Wales, they’ve now set it at one level. So if you’re above £30,000 you self-fund, and below £30,000, if it’s residential care you’re funded by the local authority.
It’s quite important to make sure that people, if you’re advising clients to make sure they are getting everything that they’re entitled to from the state. And the main one really is attendance allowance, which is a non-means tested benefit. There are two levels. There’s a higher rate and a lower rate. If you need care during the day and during the night you will get the higher rate, which is about £83 a week. If you need care during the day or during the night it’s about £55 a week. So it’s money. It’s not going to fund all of your care, but it’s certainly money that’s worth having. And again rather than advisers perhaps getting too bogged down - The forms are quite lengthy, about 30 pages long - it would be well worth your just referring people to the Age UK service that have a very good service that can help people fill out the forms, get them lodged with the DWP and get their attendance allowance in payment.
The other payment is the NHS funded nursing care, which I mentioned earlier the different levels in the different territories. In England, it’s £155 a week. You do have to be in a care home registered to provide nursing care to get this. And it does tend to happen more automatically because the money is paid directly from the NHS to the care provider; it’s not given to the individual like the attendance allowance is. And just a quick table on the next screen of some of the other benefits that might be payable, some of the means tested and non-means tested benefits.
PRESENTER: Well, Graham, there’s certainly a lot of confusion when it goes to government provision. So do you think if things were a lit bit clearer then people would be more prepared?
GRAHAM DUFFY: Yes. I really believe that, yes. I think when you consider that this whole social care issue has been going on for well over 20 years now, and they actually had a Royal Commission in 1997, which reported in 1999 how to address, and when you look at what they’re talking about today, Damian Green for instance said we must address this social care issue, it’s exactly the same as they were saying 20 years ago. If the government just made it much clearer about who’s going to pay, and if you’ve got money you’re going to have to pay for it yourself if that’s what it’s going to be, I just think it creates inertia for people to say oh there’s going to be a cap so I don’t need to worry about it. And then as you know the cap was set, well there isn’t going to be a cap, and then there is going to be a cap. If they just got it clear right from the start I think that would help a lot of people understand what they’re going to have to pay. Even if they increase the capital limit from £23,000 say up to £50,000 or £60,000 or £70,000 or whatever it’s going to be, but just make it clear of exactly how it’s going to work. And I think that is really important for the government to be clear on it, because how does anyone else know what’s going to happen if the government don’t make it clear.
PRESENTER: And, Jennifer, what do advisers need to know when it comes to changes in healthcare and longevity?
JENNIFER GILCHRIST: I think there are a lot of advisers out there already waking up to the fact that later life care needs are actually part of the whole retirement advice package that they need to give. But unfortunately they’re in the position where I suppose in a way we as providers, as Graham mentioned in his early presentation, that actually there isn’t that many products out there available to advisers to provide for clients and to meet their needs in later life. So actually back to what Graham was saying about the lack of state making decisions on what they do for social care and later life needs, if they were really clear, and came out and the regulation was put in place, then obviously we as providers would be able to potentially develop products that advisers would have in their toolkit to be able to meet the consumer needs for the clients who come to see them.
PRESENTER: And so the situation in the UK now, what are we looking at Graham, because you mentioned some stats earlier. I mean are we looking at a potential crisis then?
GRAHAM DUFFY: Well, the potential crisis, there’s been a potential crisis for well as I say over 20 years. They are now saying it’s reached crisis point. But what you find is that it’s not just the social care issue, it does have a knock-on effect into the NHS. And for instance I don’t know if you saw there was a report that came out recently that was saying that over 50% of council tax bills by again about 2022 I think it’s going to be, over 50% of your council tax bill will relate to social care. That’s not all necessarily elderly care, but a big percentage of it will be, because so many more people are living much longer. But then what you find is that perhaps an older person has a fall or something happens to them and they’re in hospital, the hospital stabilise them, want to discharge them, but then the local authorities find that they haven’t got anywhere to put them.
So then what happens is that the NHS will actually fine the local authorities for not, they call it bed blocking, it’s a horrible expression but that’s what happens. So it’s causing a knock-on effect back into the NHS. And that’s why they keep talking about we need to have a more integrated health and social care system, rather than it being two separate budgets, so one’s NHS, one’s local authority. What’s going to happen when you’ve got that? Well people are going to be passed from pillar from post, and there’s going to be all sorts of issues. So I just think the whole thing needs to be reassessed, if you like, but as I say that’s happened several times before. And not just the main commissions and reports, there have been probably over a hundred reports have been done in the last ten years alone from different entities like the King’s Fund, Office of Fair Trading, the Care Regulator, charities like Age UK have done reports saying how it should be addressed, and nothing ever seems to happen.
I think financial services has got a huge role to play in this in terms of the self-funders. And I think if we had clarity, we will also have new products that will come onto the market if we know exactly what we’re trying to cover, and that’s the issue. The only product as such at the moment is really the immediate care plan, which is as I mentioned a super enhanced annuity. There is actually a provider has now launched a pre-funded long-term care product, i.e. insuring against the need in the future when you’re younger. But that’s literally just come to market, so we’ll have to see how they get on with that product.
PRESENTER: Well the FCA actually recently launched a paper on ageing, anything you think that we should note on that?
JENNIFER GILCHRIST: I think it was a really good paper, and there was lots of research that they did to support the paper. It highlights the impact that, or the issues that are out there now, and the impacts that it could potentially have on public policy, and also the financial services market. But it is that next step of getting something in place where there is a definite, the circumstances are more definite for consumers and people out there so that they know what it is they need to do, and for us to then as providers be able to support them and advisers with the needs in later life.
PRESENTER: And when it comes to the government’s attitude to social care, I mean what are you seeing, what would you say that’s like? Graham, I’ll put that to you.
GRAHAM DUFFY: Well, it’s interesting, because if you go right the way back to the National Assistance Act when the NHS was formed that was all about health, and social care was kind of always a separate issue. So that helped with doing things every day, the activities of daily living or care outcomes as they tend to be known, that’s always been a separate issue. And it was made more clear in the NHS Community Care Act 1990, and now has become, a lot of that has been replaced by the Care Act 2014. So it’s probably a bit unfair when for instance Theresa May came out and say we’re not going to have the cap, but we’re going to have £100,000 floor. Yes, the bad part about what she said in the manifesto was they’re going to include the property even if you’re having care in your own home, which was an issue. But then obviously what happens is any announcement that’s made by one particular party, it’s always attacked by the other parties.
So they really need to get a cross-party agreement about how it’s going to be addressed. I think that’s the big issue. Because whatever one of them says the others will attack it automatically whether it’s right or wrong. Because I actually thought the £100,000 floor, i.e. you spend your assets down to £100,000 and then the state will step in, I thought that was actually a reasonably good idea. Rather than it being the other way of a cap, you spend up to a level of £72,000. The floor scenario seems a better idea to me than the cap, but of course it got shot down and then there was this alleged U-turn about nothing has changed and we are still going to have a cap, we just don’t know what level it’s going to be at. And now there’s a consultation over how they’re going to address it, so it carries on for another god knows how many years.
PRESENTER: Absolutely, so then with that in mind do you think local authorities should perhaps use financial advisers more then, and why?
JENNIFER GILCHRIST: I think part of the Care Act 2014 actually put an obligation if you like on local authorities to signpost people who come to them with situations, later life situations. So I think that is something that they should be doing. But I think what’s actually happening is that different local authorities are doing different things. Some are very good at it; maybe others aren’t. So there isn’t really best practice if you like across different local authorities to heighten awareness to it. So I think it could be something that more attention could be paid to, and just more signposting and support at that level can be provided or given.
PRESENTER: And what does the law say?
JENNIFER GILCHRIST: Well the law is actually that local authorities should be providing. The word that’s actually used in the law is advice, that the local authorities should be giving them advice. But for me that means that they should be advising consumers how to get financial advice if that is the right thing that they should be considering. But I suppose the local authorities should be signposting that more effectively.
GRAHAM DUFFY: The statutory guidance does actually state that staff at the local authorities should know the difference between the non-regulated side, i.e. perhaps help getting benefits and things like that, as opposed to the regulated side, i.e. the advice. If you’re making a recommendation to someone about how they fund their care, that is a regulated activity, and they are meant to be signposting and referring people to regulated advisers if that’s what’s appropriate. And that is clearly set out in the statutory guidance, which they should be following. But as you rightly say it happens well in some areas, but not so well in other areas, so there’s a big disparity around the country really.
PRESENTER: Well now let’s go back to that presentation that Graham gave earlier, but this time looking at the options available for those funding their own care.
GRAHAM DUFFY: OK. Let’s have a look then at the ways that care may be funded, including whether state may fund even if you’ve actually got some capital, and then looking at the options for if you want to retain the property. And then selling the property, and looking at what the options are for realising that capital and using the cash from the sale. Now first of all it could be funded by the local authority, but obviously in broad terms if you’ve got more than £23,250 you are going to be a self-funder. But when you have couples, for instance, and one of them goes into a care home, and the other’s remained at home, the property will be disregarded. Therefore provided other assets of the individual that’s going into care are less than £23,250 the local authority could well fund that care. There is the possibility of the NHS fully funding the care. This is quite a strict criteria they go, but it’s known as NHS continuing healthcare, or sometimes known as fully funded care. If you do meet the criteria it does mean that the NHS will have to fully fund your care costs, so that’s obviously worth considering. Unfortunately for a lot of older people they are just old and frail and need help with their activities of daily living, and they therefore do not quality for NHS continuing healthcare.
The other aspect, and again this could be applicable where somebody has say a severe form of dementia, if they are sectioned under the Mental Health Act 1983, under section 3 of that act, section 117 aftercare services, the state have to pay for all of that person’s care. Now I’m not suggesting, being sectioned is obviously a very serious subject and a serious matter, and you can’t just go along if you’ve got dementia and say well I need to get sectioned to get my care funded, it’s not as simple as that. But if you are sectioned it would be fully funded. And then if people have got sufficient income to fund their care, then they don’t have to eat into capital to fund that care. But when you’re looking at care costs of £40,000 a year, how many people have actually got enough income at that stage in their life to fund that kind of level of care cost?
So moving on to the main ways for self-funding, if you want to retain the property, the first option might be to consider the deferred payment agreement, which is a scheme offered by the local authorities whereby they can lend you the money to fund your care. They take a charge on your property and recover it when you’ve passed away. So it’s what the government say no one will have to sell their property to fund their care during their lifetime. You have to meet the criteria, and if you’ve got other assets that are above £23,250, then you won’t meet the criteria so it’s unlikely you’ll get it. But if you meet the criteria the local authorities now under the Care Act 2014 should be offering you the deferred payment agreement. So it might be worth considering that. It’s a low rate of interest, it used to be interest free but it’s now 1.65%. And there will be setup costs exactly the same as if you were doing a mortgage etc.
The next one along might be, retaining the property would be perhaps renting the property. Can you rent the property out? And by the way you can actually rent the property even if you’ve done the deferred payment agreement, but if you haven’t got that and you want to rent the property, then that could be a good way to make up that gap because your gross care fees and your other income. Generate rental income that covers the cost. Now there are pros and cons with each one of these options. Renting property may sound very simple and straightforward, but there will be issues with that. And if you’re somebody that’s not used to renting out property you could come across all sorts of pitfalls and things like that.
The final one on retaining the property really is equity release. There are some issues with equity release. Most of the providers will not provide an equity release product if you’re going into a care home and your property is left empty. You might be able to do equity release if you want to stay in your own home and release equity on perhaps a drawdown basis to cover your care need. But there are, as I understand it, there are providers that are seriously looking at providing equity release type of products on the basis of people going into care and their property being left empty. So that is a possibility. And advisers need to be aware of those things and keep themselves up to date on what all the options are with regard to that sort of thing.
Most people do tend to sell, most families really tend to sell the property, either the families that are acting as power of attorney perhaps. The property is sold, and unfortunately for a lot of people, as we understand it, the money is just left in the bank. Now it may be, some of it may be on deposit, but what rate of interest are you going to get at the moment? I know interest rates have just gone up slightly, but you’re probably still only going to be getting around about 1% if you’re lucky. So the second option would be perhaps using an investment strategy to generate the income that you need to fund that care. Now there are going to be risks involved with any investment strategy. So it’s worth looking at that very seriously, but the last thing you really want if you’ve invested money to cover your care costs is for there to be a downturn, if there was another 2008 for instance and suddenly it just adds to the stresses and strains of having to fund the care costs.
So the final option would be the immediate care plan, which is the product that we have, which is like a super enhanced annuity. So it’s bespoke to the individual. It’s underwritten based on medical evidence from the GP and the care provider, underwritten, and then we provide terms. It’s ourselves and Aviva that are in that market, so there are only currently two providers. We provide the terms, and then the adviser will then discuss that with the client and see if it’s a viable proposition.
The ideal scenario would probably be if you’re in a position, you’ve got enough capital to do all three really. So you could buy the immediate care plan. That’s then ring fenced your care costs, so you know where you stand with that. You’ve got money left over that can be invested, so hopefully get a bit of growth on that, and obviously depending on how long the individual lives, that would have a bearing on that. And you keep some in cash for emergencies. But you obviously need enough capital to start with in order to be able to do that. So they’re the different aspects. So that’s really what you’re looking at with regard to self-funding care costs, and the different options, retaining and selling property. So thank you very much.
PRESENTER: OK, Graham, so earlier you actually spoke about the government’s attitude to this sort of thing. So when it comes to the dementia tax U-turn, what were your thoughts on that?
GRAHAM DUFFY: I thought that was a very unfair attack, because it’s actually always been the case that healthcare is separate to social care as I mentioned earlier. And what was purported is that people that have health issues such as cancers and those kind of issues will get their care funded by the NHS, which is not strictly true - they may do, but they have to go through a strict assessment criteria - as opposed to people that just a dementia problem, which is then labelled as social care, and they get means tested for it, which again is not strictly true. Because there could be an assessment for your dementia situation, and you could qualify for continuing healthcare through the NHS, because there’s no specific condition that includes you or excludes you with NHS continuing healthcare.
And that’s always been the case going back to 1948 under the National Assistance Act, and strengthened through the NHS Community Care Act 1990, and now replaced with the Care Act 2014. So I thought that was a bit disingenuous to attack it in that way. The issue I did have concerns about was including the property in the financial assessment, even if you’re having care in your own home, because currently it’s disregarded. Quite how that would work in detail I don’t know, the devil is always in the detail isn’t it? And as I say the cap, there were people that were arguing about the cap, that it actually benefits wealthier people because a £72,000 cap.
We should also bear in mind that the cap wasn’t truly a cap in the sense of just capping all of your costs. It was only the physical care that you were going to be having. And if you’re in a £1,000 a week care home you’ll probably find that £300 a week of that was the physical care. The hotel accommodation living costs was separate, and you would have to pay that yourself. You would have had to have met the eligibility criteria to start with, and it would only be geared to the local authority rate as well, not the full private rate, which there’s a big disparity of as well. So it wasn’t all it was cracked up to be.
So I thought the idea of the floor of £100,000, you spend your assets down £100,000, which is currently £23,250, was quite a good idea actually. But obviously it got shot down and we just don’t know what’s going to happen now. That’s the big unknown.
PRESENTER: Absolutely. So Jennifer then, if there were more private provisions do you think it would perhaps drive up quality in the elderly care space?
JENNIFER GILCHRIST: Yes I think so. I mean if we had a well-working market I think what would happen is you would have the availability of potentially products out there that people could buy, and more advisers giving advice, and people seeing the benefit of that. So I think if you had that and it was all working effectively, I think you would have a much better valuable market, and therefore it would drive up the potential quality of the care services that consumers would be able to buy themselves, or be able to be supported through a financial product if there were services attached to them. So I think it would drive up the quality. I mean what you have just now is obviously lots of things coming up in the press where things and care homes or the services that are being provided by local authorities are falling short.
And I suppose you do get some quite horrible stories in the press, and you don’t hear the nice stories as well, because I’m sure there is a balance there. But I’m sure that anything that would help to drive that quality up would be really good, because it is an area that I think that you hear that the people who are working in the care sector are being paid minimum wage etc. etc. And actually knowing from a personal point of view, if I had a parent who had to be supported, you would want that person to be caring, and not be clock watching, being on minimum wage and running about doing things too quickly for the person that you want to be looked after.
PRESENTER: Absolutely, so then where do you see the gaps in the market, and indeed the barriers?
JENNIFER GILCHRIST: Well, the barriers just now are, I suppose it is that, going back to the dementia U-turn. Despite the fact that it was not the right thing to say, it was unfounded because there’s legislation there that clearly set out NHS and social care, and it’s very clear. But then for the actual man in the street, the person in the street actually, they don’t really understand the NHS social care being separated. So it really is consumer education if you want to call that, and awareness. And I think the government leading that would be really good to really make people understand this is a risk that they’re going to face in their life. And that the state, although they will provide a certain level of cover, obviously that is going to be a minimum, and they should be thinking how they want to then self-fund the extra on top of whatever if they get any state provision.
PRESENTER: So Graham then, how should advisers approach this part of the proposition?
GRAHAM DUFFY: I think the advice process is very important to the whole issue. Under that FCA report on the ageing population and financial services that you mentioned earlier, they do refer to the good work done by SOLLA, the Society of Later Life Advisers. And those advisers have not only got a good technical knowledge of the whole care system and all issues relating to later life, but they’ve also got what are described as the soft skills as well. So they know how to deal with things empathetically and deal with it properly.
So I think advisers also need clarity over what are they trying to achieve for a client? Is it, there have been some statements even by the likes of Andrew Lansley and Andrew Dilnot saying that you cannot currently cap the cost of catastrophic care, which is simply not true. And that to me is miss-information. So advisers need to have a good understanding of all those issues. And while there’s not the clarity it’s difficult to know how you’re going to fit in your advice to that process, and it can be quite difficult.
For many people, it will be quite simple and straightforward. They’ve got plenty of assets. They’re clearly going to be a self-funder. They’re not going to qualify for NHS care, and therefore they’re going to have to fund the care themselves. So then it’s a matter of covering off the different options that there might be for those particular clients.
PRESENTER: And are there tax implications perhaps that people need to be aware of, what would you say Jennifer?
JENNIFER GILCHRIST: Well obviously when you are potentially needing care help, there will be the situation where depending on your assets, as Graham has said, there is that level. If you’ve got more than £23,500 then you are going to have to fund that yourself. I think one of the things with the market as it is just now, all of the later life advice if you want is almost mostly geared to funding at the time of need almost, and actually is that something that is a key area that we need to actually think about, is that the right and only thing that we should be doing? And actually prefunding is going to be much more important. Obviously Graham mentioned that earlier. Prefunding it and actually getting people to think about it earlier is going to mean that they will be more prepared. Because providing it earlier means that it’s not going to be as, OK it’s still a substantial cost, but it’s maybe not as catastrophic. And I think this is where actually insurance can help.
So obviously people have assets and then can use these assets to fund their care or buy an immediate needs annuity. But actually is there some form of insurance that could actually manage that risk for people? And if we can pool that is that more a solution for people, more people would benefit from that solution because it wouldn’t be as expensive, so more people would be able to afford it. And actually bringing that to their attention earlier, so that they can fund that possibly preretirement when they’re actually thinking about what their retirement needs are and planning for their retirement. Is that the optimum time to set this in place and really start thinking about your retirement situation, how you’re going to fund yourself in your retirement. Part of that is later life, so disconnecting it or leaving it to the last minute or when it actually happens, maybe we need to join that up.
PRESENTER: So Graham then, when can unregulated financial advice make a difference?
GRAHAM DUFFY: I think people need to understand what they’re entitled to from the state, which would be the unregulated side, because you’re not giving a recommendation as to how you’re going to fund your care. And there is actually a lot of good information out there from charities such as Age UK. They have fantastic fact sheets that are really good about what’s available to people that have a care need, how the assessment process works. So you’ve got Age UK, Independent Age, and some of those charities also give booklets on what the options are for funding care as well if you’re a self-funder, and first stop care advice through Elderly Accommodation Council is another one.
So there’s a lot of good information, a lot of good fact sheets out there about all those aspects. It’ll cover benefits, what is deliberate deprivation of assets, how your property is treated, all of those fact sheets are really useful. But as I say that’s the unregulated, what they can’t do is they can’t then say to somebody you’ve got a certain amount of capital, we would advise you go and do this, i.e. invest your money or buy a care annuity or whatever it’s going to be. That’s what they can’t do. But the unregulated side is very important, and there are many advisers, financial advisers that will deal with both parts of that. So they’re happy to deal with that unregulated side, making sure the clients are getting what they’re entitled to, and then move on to the regulated activity as well.
So it depends on, you’ve got be a little bit careful as an adviser that you don’t get too entrenched in dealing with the non-reg side, because you’ve got to bear in mind if you’re charging a fee for your advice, you don’t dilute the fee too much if you see what I mean. So you obviously need to be paid for the work you’re doing, and if you’re charging an hourly rate and you ended up helping a client with their attendance allowance forms, that can take hours and hours and hours, and suddenly your fee is either astronomical or you have to dilute it to make it palatable to the client.
PRESENTER: Absolutely, and duty of attorney, where does that fit in?
JENNIFER GILCHRIST: Well that fits in really where people want to be pre-prepared for their later life, where they want to set something in place that if they’re not capable of looking after themselves going forward, that there is something in place that puts their family potentially in charge to look after and make sure that someone is there to help them through any difficult times. For me that’s really important, and I think again what happens these days is that people put them in place maybe a bit later than they should, or right at the time that actually it’s quite difficult to get the power of attorney actually through. So it is a good thing to be thinking of much earlier on, so that that is in place and you’re not rushing to do it at a time where there is potentially care needed at the time.
GRAHAM DUFFY: I think there are duties for attorneys as well. They have to act in the best interest of the donor, i.e. the person giving them the power of attorney. And so therefore they shouldn’t be doing anything that benefits themselves, and I think that’s one of the potential conflicts of interest with regard to powers of attorney. Now hopefully if attorneys are sons and daughters of the person that needs care, they’re going to be doing everything in the best interest of mum or dad anyway. But you do get certain instances where perhaps that conflict of interest, but that’s effectively going to be my money, and they’re not perhaps doing everything the way that they should be. And they do sign a code of conduct when they become an attorney to say that they will follow those duties correctly, so you just have to be. Again I think advisers need to be aware of that situation as well, making sure that they do. Because according to Judge Lush it can include not just the attorneys themselves with regards to those duties, but their financial and professional advisers as well as the individual that’s the attorney. So they just have to be a little bit careful how they deal with things.
PRESENTER: So where do people start, how do you become a specialist with this?
GRAHAM DUFFY: As an adviser, experience obviously will count for quite a lot. It’s really just starting it off. And there are quite a few people that are later life specialists, I would say, but when it comes to care it’s probably actually quite a limited number of advisers that are actually specialising specifically in advising clients about long-term care funding. It is experience. It is getting as much information, so obviously your qualification is important. You’ve got to be qualified now, and I think the FCA have made that quite clear around the advising clients and the qualification, and then perhaps looking to do your later life adviser accreditation, because you can gain a lot more knowledge through that with CPD and all those sorts of things, and lots of good webinars and seminars and all those sorts of things that you can gain knowledge from. And really build up your knowledge and your confidence in being able to advise clients, and having that good comprehensive knowledge of the whole thing. But equally having the soft skills to deal with clients at an incredibly sensitive time if parents are needing care, so that is hugely important as well, the soft skills as well as the technical knowledge.
PRESENTER: And what sort of products are out there that have potential, and also with clients, how to get them motivated, do they have much incentive?
JENNIFER GILCHRIST: Well again it’s all back to the barriers in the market, where clients are a bit unsure what the situation is, inertia, they don’t want to think about it. If it was brought to their attention more often at an earlier, then maybe that is the way that it will happen, and if it does feature as part of almost a retirement solution, if we can as providers encourage advisers to start thinking about it earlier, and as part of the whole retirement solution that they put in front of their clients earlier, maybe that is a way that one adviser will then gear themselves up to more specialism and expertise in the later life market and not keeping it separate from the whole retirement advice that they provide their clients.
PRESENTER: So what do you think would really drive things forward then?
JENNIFER GILCHRIST: I think everybody has got their part to play in the market. The government obviously setting out clearly what it is they need to do. Putting things into law so that it’s set in stone, we know the caps and everything like this. So that we can actually then sit as providers and, I mean we were talking about products in later life, but actually is it that we need to evolve the ones that are there. Do we need new products? Is it that we just need to look at what’s out there already and build it within it? So products for, in Royal London we do lots of protection, life, critical illness and income protection, and therefore how can we make them later life friendly so that they don’t stop too short age wise, so they go into later life and longer ages, later ages. So it’s not that we need to build something completely new, it’s really trying to accommodate that within the suite of solutions that we have now.
And I think we’re already thinking of that, but I think everybody’s got their parts to play – advisers - and gearing themselves up to have the qualifications. And really if we all work together to do that, I’m sure it will come together and we will have a more effective market going forward. Because quite frankly I don’t think we’ve got a choice, we need to do something about this.
PRESENTER: Absolutely. Well, we are out of time, unfortunately, so maybe just a few key takeaways for this session, so Graham, why don’t you go first, final thoughts.
GRAHAM DUFFY: I think if you look at it from top down we need the government on side with backing financial services. And if it requires using organisations like SOLLA to do that, to ensure that there’s as much protection for people as possible in terms of this miss-selling potential and all that sort of stuff. So make it as water tight as possible. So government buy-in at the top, and then feeding that down to local authorities, because it’s in everyone’s interests. If local authorities are referring self-funders for financial advice, and those people’s capital lasts longer, they don’t run out of money, it means they don’t fall back on the state for funding. So it helps the tax payers effectively. Organisations such as care homes are taking residents in and charging, I don’t know, £1,000 a week or sometimes more. Just let them know that there is advice out there, and people that can help them, and have a good broad understanding of the whole system. They’re not going to just try and sell you a product because they’ve got to have this qualification that gives them the understanding, and will look at all the options for you. Solicitors as well need to work more closely with financial advisers to ensure that those self-funding clients are getting advice where it’s appropriate.
So there’s quite a lot to be done, but it’s a frustrating because a lot of that work has been done over the last many years. So it’s a bit frustrating in terms of perhaps not achieving, seeing as many people about their, advisers seeing as many people about their self-funding as should be seen. So that’s the way I would see it.
PRESENTER: And Jennifer, what would your final takeaway be?
JENNIFER GILCHRIST: I suppose in a way it’s quite similar to Graham. But from our perspective it’s very much about that ecosystem surrounding a customer. I mean Graham’s mentioning all the different, the government, advisers and everyone that can actually help support the customer. It is all that. It’s a partnership. We can all work together to make sure that what the customer actually experiences, that ecosystem surrounding them, they have access into everything that they need in their later life, and if it’s that we as providers need to have partnerships with innovative technology, providers who can actually help with later life, how these things can actually be used to support people in later life. That if we join together and work in partnership, we can make a better situation for our customer, bring it to them, and it’s going to be much clearer for them how they go forward and they can actually cope with help in their later life.
PRESENTER: Jennifer, Graham, thank you.
GRAHAM DUFFY: Thank you.
JENNIFER GILCHRIST: Thank you.
PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you’ll be able to understand and describe the government’s attitude to social care and what the law says; the barriers, gaps in the market for potential care products, and how advisers should approach this as part of a proposition; and what can drive the long-term care sector forward. Please complete the reflective statement to validate your CPD.