Con Keating of the Brighton Rock Group and Laurence Kleerekoper, formerly of the Government Actuarys Department, shared their predictions and precautions at an actuarial seminar held on 17th October by Hazell Carr, UKs leading provider of skilled resources operating in the financial services industry
Laurence examined the main drivers behind the need for funding of social care for the elderly, covering both the cost to the individual and economy. Increases in life expectancy are not matched by a commensurate increase in healthy life expectancy.
Definitions of care used by insurance companies differ to those set by local authorities, which also differ between individual councils. Slight, but very prominent differences can pose problems for care users and result in a lack of consistency of long term care across the UK for example, 'person cannot button their shirt' to 'person cannot dress themselves'.
Currently 40% of people over age 90 are unable to manage two basic tasks, such as eating and dressing, and this combined with increases in longevity, is resulting in an increasing need for long term care. Studies further suggest people aged 65 and over requiring daily assistance from another person will rise from 1 million (11% of the population) in 2010 to 1.9 million (14% of the population) in 2030. This supports Dilnot's earlier report indicating 75% of the elderly population would need help from others.
Research highlights 50% will need to spend £20,000 for care over their lifetime and only a small number up to £300,000 but measures are needed to review costs for individuals. New protocol planned for April 2016, looks to increase the upper asset limit to £118,000 (from £23,250) for receiving help from the local authority, with lifetime care costs capped at £72,000. To avoid care users from having to sell their family homes to afford care facilities, deferred payment agreements will be made, but contributions to daily living costs of £12,000 per annum will still need to be made.
Options for individuals to bridge the gap between state funding and the true cost of their care, include equity release schemes, immediate needs annuities, disability linked annuities and personal care savings bonds.
With the uncertainty of long term care costs, future financial stability is as important now as it ever was. Con Keating identified optimal pension provisions can pose concerns, as what is optimal in one situation may not be so in another. There are many advantages of occupational DB over DC, including bulk buying, risk pooling, risk sharing, time continuity, economies of scale and economies of scope. However, disadvantages stem from incorrect accounting and regulation.
Con believes the future lies with insured book-reserve occupational DB pensions, as they offer incentives to employers to provide them. They retain all the risk-pooling, risk-sharing properties of DB while eliminating the expense of management and administration of funds. Furthermore the insurance cost is less than the feeds of fund management, removing the tax-cost of funding and benefiting the wider economy - their corporate sponsors and scheme members.