Money: A small step for the elderly but not far enough

Government plans for a partnership with insurers to pay for long- term care have not been well received. By Clifford German
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The Government's plan for a partnership with insurance companies to promote insurance policies to pay for long-term care and help pensioners protect their homes from being sold is getting a general thumbs-down from the insurance industry, the pensioners' lobby in the shape of Age Concern, and professionals in the industry represented by the Continuing Care Conference.

The deadline for comments on the consultation document expired yesterday. The general view is that the document is a step in the right direction, but the proposals as they stand are not generous enough and will appeal only to a narrow slice of the market, mainly those with assets of less than pounds 75,000.

According to the Continuing Care Conference, the action group for the long-term care industry, they also place too much emphasis on protecting assets and not enough on the equally important issues of ensuring there are enough homes to meet the demand for care or that local authorities will have sufficient funds to provide a consistent quality of care needed throughout the country .

If the Government ignores these issues there is a real risk that the proposals will create a "fast track" to long-term care for elderly people funded by insurance, and further disadvantage those who rely wholly on state help. The proposals also fail to address the problem of providing financial help to encourage elderly people to stay in their own homes.

The average cost of residential care ranges from about pounds 15,000 a year in the North to pounds 20,000 a year in the South-east, and nursing care can add an extra pounds 5,000 a year. Most people needing care will have a pension but typically will need another pounds 10,000 a year to pay for care, even without little luxuries.

A man of 60 can buy a policy from Commercial Union now, paying a single premium of pounds 8,855 or pounds 62 a month to get pounds 10,000 worth of cover a year (indexed to provide an extra 5 per cent a year to cover the expected rise in annual costs). It will pay out once he fails three of the six recognised tests for looking after himself at home. A women would have to pay pounds 16,472 or pounds 77.70 a month and premiums needed to take out a policy rise with age to pounds 9,346 or pounds 86.10 a month for a man of 70 and pounds 17,989 or pounds 113.80 a month for a woman.

The Government's consultation document published on 7 May proposed that anyone who takes out a long-term care insurance plan which pays a set amount of money for a limited period of time if they need to go into a residential home or nursing home can protect pounds 1.50 worth of assets for every pounds 1 worth of insurance they bought.

Once their insurance is exhausted they would be able to claim state support at an earlier stage than at present, enabling them, for example, to protect their home from having to be sold to pay for care. According to CCC, the cost of buying pounds 10,000 worth of cover for 27 months would be 36 per cent cheaper than a commercial policy, and also protect pounds 50,000 worth of assets from being sold, but the savings diminish as the amount protected increases.

It means the Government scheme is attractive only to individuals with assets under pounds 75,000, says CCC. Giving pounds 2 worth of protection for each pounds 1 of insurance would offer savings of 25 per cent and shelter assets up to pounds 100,000, which would be more relevant to people in South-east England.

The Government's second option of protecting only pounds 15,000 plus pounds 1 for pounds 1 insured for individuals after four years is attractive to no one, and if this time-related option is pursued the pounds 15,000 protection should be pounds 45,000 and the support should cut in after three years.

Scottish Provident also endorses a plan for pounds 2 of protection for each pounds 1 of insurance. Alternatively it wants a time-limited plan which will allow anyone who insures for three to four years of care in full to exempt all remaining assets from claims.

But the amount of cover permitted is not the only issue. The definition of who is eligible for residential and nursing care also needs to be standardised, or there is a real danger of disputes over when claims can be made.

There is an equal danger that if local authorities are not fully reimbursed by the Government for their inability to claim protected assets ring-fenced under the partnership plan they will reduce the standard of care they can fund or raise the qualifications before they agree to finance care.

There should also be a national register of partnership plans and a national approval system in order to create the degree of consumer confidence needed in such a sensitive area.

Since the great majority of people who would find partnership insurance attractive have most of their money tied up in their homes, they will also need to take out equity release schemes which allow them to obtain the cost of the insurance premiums by taking out a new mortgage on their homes. The loan is only repaid when the pensioner needing care and any surviving spouse are both dead and the house is sold.

Respectable equity release schemes already exist but income withdrawal plans designed to generate extra income from house values in the Eighties had a chequered history. Stalwart, one of the specialist companies which offer equity release, has told the Government that pensioners will need maximum reassurance that any new schemes are safe and represent value for money. Stalwart also insists the Government will have to ensure that tax relief is available on such remortgages, however long they last, and that the annuity bought with the proceeds qualifies for full tax relief, which under present rules it might not.

Individuals who have not been able to purchase partnership schemes should also be allowed to purchase "immediate needs" annuities which start paying out at once, although in order to provide an incentive for taking out long-term care insurance early in life the level of asset protection for immediate needs annuities should be less than the recommended pounds 2 for pounds 1. CCC suggests the pounds 1.50 worth of protection for each pounds 1 of insurance bought should apply in this case.

One essential element in whatever plans are finally agreed is, however, likely to be in short supply. Stalwart insists the essential ingredient is simplicity. The industry still has some way to go in making the advantages of the plans comprehensible to the layman.

There is no doubt the need for long-term care is growing inexorably and the Government's willingness to finance it out of public money is shrinking visibly. The Labour Party is unlikely to come to the rescue of the growing army of elderly people who find themselves too well off to claim state benefit in full and too poor to pay for care out of their pensions. Only one person in five currently needs to go into a home and if the proposed partnership insurance plans do not look attractive they are unlikely to solve the problem because the public will not buy them. More work is needed, and quickly, to establish a consensus for action.

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