The ‘care crisis’ has become a media catch phrase. We’re all well aware that an ageing population is making the cost of retirement soar. Pensions need stretch further across both years and people, while the cost of care home residency continues to rise. All at a time of fiscal tightening.
But recent research by market researchers Mintel indicates that over one third of Britons aged 75 and over have given no thought whatsoever to paying for the cost of long-term care.
The cost of care crisis
The cost per annum of a place in a residential care home is skyrocketing. Research by Prestige Nursing + Care found the average cost has jumped 9.3% in just two years, to £28,367 per year. The average pension is £13,799, less than half.
This wouldn’t be a problem were the public purse freely spilling coins to cover the cost for those that can’t afford it. But research by Age UK found that: “in the six years before the present financial troubles, public spending on older people’s care increased by just £43 million after inflation (a real terms increase of 0.1% per year). At the same time, the number of people aged over 85 who are most likely to need care increased by 23%, while costs in the care sector continued to outstrip inflation as well.”
Further, local councils are providing decreasing levels of support to people with ‘moderate’ care needs at home, and underpaying for care homes at varying levels across the country. The average shortfall is £60 per week, rising to £120 per week in the South East – a lottery retirees are ill-placed to play.
The net effect is a rise in the cost of care due to a) increasing demand b) greater expectation of private contribution to care and c) those that can afford to contribute subsidising those that can’t.
With the demographic shift to an ageing population and Cameron’s promised state of permanent austerity, it looks like the situation will get worse rather than better.
Social care reforms
It’s not all bad news. The government is putting measures in place to help ease the blow of paying for care in your old age.
From 2016, a maximum cap on the amount you pay for care costs in your lifetime will be introduced at £75,000, with financial assistance given on a sliding scale dependant on assets. The current threshold of £23,250 – below which pensioners qualify for assistance – will be raised to £123,000.
In a bid to allow retirees to keep their family home, and potentially delay the move from in-home assistance to care home, the government has pledged that no one will have to sell their home to cover the cost of care. Instead, payment can be deferred and recovered from the estate.
The trouble is, this still leaves a massive bill. And when even an average retirement income requires total savings of approximately £400,000, not including the cost of care, it’s not clear how pensioners can meet that bill.
Planning for the future
Perhaps more worrying is assessing the likelihood of these reforms actually happening. Implementing them will need a lot of extra public funds, and a survey from the County Councils Network (CCN) – surveying local authorities, those charged with carrying out the proposals – found 100% of respondents citing financial shortfalls as a “major concern” in making the reforms reality.
Likely prospects are further changes in the rules when confronted with the size of the bill, or an elderly care service stretched so thin as to provide the most meagre of services. When already confronted with care home horror stories the latter is hard to imagine.
With the future uncertain, it might be best for those still young to prepare to save for the cost of private care; no easy task when the Mintel research found 56% of current over-75s expecting some sort of support from their family, and the nation’s youngsters are struggling with above-inflation rent and sky-high graduate debt – often needing their own subsidy.
Whatever happens, it’s almost certain you will have to contribute a large amount to the cost of your own care in retirement. It’s important to factor this in to your retirement savings plan, not just calculating for your pension. With lifespans increasing, the chances of seeing out your days without setting foot in a care home aren’t looking good.