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The Actuary The magazine of the Institute & Faculty of Actuaries

Think-tank proposes public/private route for national fund to tackle long-term care

A report published today by the Strategic Society Centre sets out a new model of how the state and the financial services industry can work in partnership to solve the long-term care funding crisis confronting England and Wales.

The report ‘Delivering a National Care Fund: How would a public-private partnership work?’ develops a delivery model built around a state-sponsored insurance scheme that is administered and underwritten by the financial services industry.

Building on the model of a National Care Fund for long-term care, first proposed by the report’s author, James Lloyd, in 2008, the new report explores how a National Care Fund for long-term care in England and Wales could be delivered by the private sector, with the potential to achieve the outcomes for the social care funding system sought by policymakers.

The National Care Fund model proposes that, in return for a £6,825 premium from retirees, or £14 per month over a 40-year working career, retirees who are no longer able to undertake 3 or more ‘Activities of Daily Living’ (ADLs) would receive a benchmark income of £150 per week for the rest of their life.

The paper builds on three observations regarding the challenge confronting policymakers:

1. The failure of conventional consumer insurance for long-term care
2. The need for new funding in the system
3. The limited appetite among HM Treasury fiscal policymakers for taking on new liabilities.

Developed in consultation with members of the insurance industry, the paper assembles a delivery model for a National Care Fund built around two core components:

1) An accumulation/investment regime would see asset managers operating large social investment funds on behalf of the National Care Fund

2) The annual profits and notional contributions from these funds would be used to purchase community-risk rated annuities for all individuals reaching the 3 ADL threshold of need in a given year.

James Lloyd, director of the Strategic Society Centre, said:

"The model we are proposing will make big demands on the financial services industry; in particular, it would see the number of life annuities written each year increasing by over 50%. But, we have consulted widely, and there is nothing in this model that the industry would not be able to do. We have even had word from some key life insurance players that they would be interested in participating.

"It is an open secret in the insurance industry that the pre-funded long-term care insurance market will never be significant, but there is an appetite for helping to find a solution to the problem of long-term care funding, and the model we are putting forward provides a way for industry stakeholders to do this.

"For individuals, the model is a compelling one. For a £6,825 premium payable as a lump-sum or in small contributions, they will receive £150 per week in old age toward personal care costs if they experience substantial levels of need, whether they live at home or in a residential care facility."

The independent Commission on Funding Care and Support, chaired by the economist Andrew Dilnot, is due to issue final recommendations to the government in July of this year.

The Strategic Society Centre is a London-based public policy think-tank whose aim is to apply evidence-based strategic policy analysis to complex societal problems.