Take care of No1

It is worth starting to plan for long-term care early

Killjoy. That is the name used to describe someone who repeatedly spoils everyone's fun - such as referring to the possibility that at a late stage in many people's lives they may need help in looking after themselves. And pointing out that this care may prove highly expensive.

Even so, it is better to be a killjoy at times than to pretend that there is nothing to worry about when it comes to looking after oneself in old age.

The evidence points to the fact that we all live longer today than even a decade ago - up to the age of 80 and beyond, on average. Most of us will still be fit at that age. But some will require help with their daily living needs.

At present, the average costs of full-time care are about pounds 17,000 a year, while the cost of care in one's own home can rise to pounds 30,000 if two carers are needed.

Despite changes announced by the Chancellor in the November 1995 Budget, a local authority will only contribute totally to these costs if an individual's total assets are pounds 10,000 or less. Anyone with assets of up to pounds 16,000 is means-tested, while the entire cost of care is recouped by the local authority if assets are over that amount.

The cries of anger from many who discovered that their homes were calculated as assets led the Government not only to increase the lower limits before income was assessed from pounds 6,000 to pounds 10,000, as stated. It also provoked a promise to review the provision of long-term care funding, to see whether incentives could be given to people who are prepared to provide some form of private cover for themselves.

Last year, Stephen Dorrell, the Health Minister, proposed tax incentives to help out. For every pounds 1 of insurance cover, an extra amount of assets can be kept on top of those already allowed.

If the "disregard" is pounds 1.50 for every pounds 1 of cover bought, a person would be able to protect pounds 70,000 of assets before being means-tested.

Another variation floatedlast year would involve a policy being taken out for a limited period, say four years. In return, a higher amount of assets would be disregarded, say pounds 25,000, plus an additional pounds 1 for every pounds 1 of cover taken.

David Aaron, an independent financial adviser at The Aaron Partnership in Milton Keynes, points out: "[These schemes] are aimed at people who are moderately wealthy, say owning a property worth pounds 100,000, but not for those with more substantial wealth."

Nor are they much use to low-asset families, who will presumably continue to be means-tested and get relatively inferior nursing care because they cannot afford better.

In any event, a draft Bill on long-term care is due next week. However, given the proximity of a general election, there are doubts as to whether it will ever make it on to the Parliamentary slipway.

If reliance on the state to fund the cost of long-term care is increasingly less of an option, what are the alternatives? Mr AAron suggests there are several.

The first is to maximise savings, possibly by adding to one's portfolio so that the funds can be used to pay for care when it is needed. Although this is a helpful start, the cost of care can rapidly dissipate even large amounts of money.

Pensions also offer benefits, in that contributions to them are tax-deductible and the investments grow in a tax free environment. The problem is that most people do not fund enough to provide themselves with a decent income, let alone the extra needed to pay for care. Nevertheless, an increase in pension contributions is useful too.

At retirement, a lump sum is often paid as part of a pension. This can be used to pay for an annuity, a further annual income, or invested until a person needs that money to pay for long-term care, when an "impaired life" annuity can be bought.

A man in good health aged 80 with a pounds 100,000 lump sum can secure an income of pounds 13,000 net of basic tax. An impaired life annuity, perhaps because he has suffered a stroke, will pay pounds 21,000 a year, Mr Aaron points out.

The final option is insurance, protecting oneself against the possibility of needing care. The odds here are at present five to one against needing care.

There are several companies offering this type of cover, including Commercial Union, PPP Lifetime, Hambro Assured, Prime Health, Scottish Amicable and Bupa. Choosing between them is a job for an independent adviser.

The most important thing, as our table shows, is to begin to plan early. The younger you are the less it costs - even if you are accused of being a killjoy for pointing it out.

For a free 'Guide to Long-term Care', call the Aaron Partnership, 01908 281544.