Personal Finance: Prepare now for your care later

Long-term care could eat into your capital.

One of the great achievements of the 20th century has been a massive increase in how long we live. In 1901, life expectancy was just 45 years for men, women living to the ripe old age of 49.

Now, four out of five men under 30 are likely to live to see retirement and almost half those that do will still be alive at 80. Nine out of 10 women will reach 65 and two thirds of those will enjoy four score years.

The recent Royal Commission on long-term care, which reported earlier this month, noted that 65-year-old men have a 1 in 5 chance of needing long-term care before they die. For women, the figure was a staggering 1 in 3.

With those odds, it is reassuring that we have a cradle-to-grave welfare system, right? Wrong. Ever since the Welfare State and NHS started in 1948, the provision of long-term care has never been part of the NHS, although many elderly people remained and eventually died in geriatric hospital wards. That came to an end with the Community Care Act in 1993. Since then, care in a home has been means-tested.

Anyone with assets of pounds 16,000 or more, usually including the cost of their home, has had to pay for their own care. Local authorities do provide care in your own home, but that is also means-tested, and what benefits you may be entitled to depends largely on where you live.

The charity Counsel and Care recently accused authorities of cheating and short changing elderly people by not always pointing out their rights to care. In 1997, for example, while the City of London provided 7,312 hours of home help per 1,000 households of 75-year-olds and over, Trafford provided just 272.

Over half a million, mainly elderly, people now live in care homes. Fees averaged pounds 352 a week last year in a nursing home, pounds 252 in a residential home, according to analysts Laing & Buisson. Many charge more, especially nursing homes (which differ from residential homes in offering round-the- clock medical care), where quality and range of services as well as location all affect the fees charged.

The best way to pay for possible care is to have sufficient income in retirement for fees, that can be paid out of pension and investment income. Attendance Allowance, which goes up to pounds 52.95 a week from next month, is payable if you have needed personal care for six months, but this stops if the local authority helps with or pays the home's fees.

Allowing for a basic State Retirement Pension of pounds 66.75 a week (from April), that can still mean having to find at least pounds 250 a week for nursing home fees. If you have a partner, the potential cost could be doubled.

The key to funding care costs is to plan ahead, know what benefits you may be entitled to, and build up as much capital or income as you can, so that if care is needed, you will not have to sell the family silver to fund it.

If care is not needed, capital or income is still there to be used for other things.

For advice, the charity Age Concern produces a range of free factsheets and Counsel and Care's factsheet on choosing a care home costs just an SAE. Local social security offices can provide information and help on Government and local authority benefits, or dial the Benefit Enquiry Line on 0800 88 22 00.

If there is still a shortfall, and for many people there will be, long- term care insurance may be the answer. Such policies have only been available since 1991 and they can be expensive, especially if you insure the full cost of care fees. To keep costs low, first work out the likely cost of care locally. Take away any State benefits you are likely to be entitled to. Finally, deduct the amount you feel comfortable paying from your own resources, including your state pension, and any occupational or other pension.

As a rule of thumb, long-term care insurance costs around pounds 10 a month for each pounds 100 a month of benefit, more if you are older, with women paying more than men, because statistically they are more likely to claim and then to live longer too.

An alternative to paying premiums monthly or annually is a care-linked investment bond. These can be quite complex, but investors who are happy with the concept of offshore insurance investment funds and trusts to gain Inheritance Tax benefits should not find them too daunting.

If you want to keep investment and protection separate, single-premium pure-protection policies typically cost around 10 times any annual insurance premium. One major benefit of most long-term care insurance is that you get access to excellent help and counselling when you need to claim.

It makes sense to get good independent advice before committing to such insurance. IFACare is a group of 200 independent financial advisers that specialise in this area.

The Royal Commission's recommendation that all personal care should be paid for by the State, with individuals left to pay for their home and living expenses, is not likely to become law this Parliament and may not do so afterwards. Even if eventually enacted, in the meantime 200 homes every working day are sold to pay for care fees. If that bothers you, an insurance policy may help you to sleep sounder at night.

Call IFACare on 01299 405 285; for Age Concern (England) factsheets call 0800 00 99 66 or write to Age Concern FREEPOST (SWB 30375) Ashburton, Devon, TQ13 7ZZ; Counsel and Care require a 9in x 6in stamped-addressed envelope (31p) for their `Choosing a Care Home' factsheet.

Andy Couchman is publishing editor of `HealthCare Insurance Report'