The Health and Social Care Act was passed on the last day before parliament broke up for summer recess. As a result, the cost of nursing care in nursing homes will be met by the state. The change is scheduled to come into effect on 1 October in England, Wales and Northern Ireland.
Scotland has decided to pay for personal as well as nursing care, but the way this will be done is as yet unknown, never mind the start date.
In the rest of the UK, the government has gone as far as it intends to go. There are to be three tiers of nursing care support. The maximum will be £110 a week. The middle tier will be £70 and the lowest £35. The bottom rung is for people who do not need to go into a nursing home but decide to do so.
Most people will probably fall into the £70 bracket, which will still leave a huge funding gap for long-term care (LTC).
Customers buy prefunded LTC to top up their existing resources. On average they buy £800 to £1,000 of benefit a month, reckoning they can pay the remainder of care home costs from other sources.
They will in future need to fund for £300 less, meaning a reduction in premium of one-third. This should open up the market to a much wider audience.
According to Peter Gatenby, a director of Age Concern Financial Partnerships, so far 40,000 policies have been sold to a potential market of one million. But he believes the latest move expands that market to between two and three million people.
But the eligibility rules for slotting people into the three categories have yet to be announced and this is causing concern among independent financial advisers (IFAs).
Specialist LTC adviser Janet Davies of Four Seasons Investments in Bidford-on-Avon, Warwickshire says: “My main concern is that these figures aren’t guaranteed. People will be reassessed three months afterwards, when they may be less dependent. Someone in the £110 band could fall into the medium band three months or a year later.”
She also points out that someone with Alzheimer’s disease may fall into the £35 bracket. While they need care and attention, this does not necessarily have to be provided by a trained nurse.
But the overall picture for LTC is bright. PPP lifetime care marketing director Paul Bennett notes that IFAs are being squeezed by the new low-margin stakeholder pensions market and are looking to the protection market for alternative sources of income.
“The IFA’s value is in advice in complex areas,” he says. “The commission on our single-premium prefunded contract is up to nine per cent. It reflects the extra work of IFAs in getting to know the market.”
Bennett also sees the likelihood that LTC will be regulated by the Financial Services Authority as a positive measure.
Meanwhile, the crisis in care homes continues, though this does not concern Gatenby unduly. “The fact there will be fewer nursing homes won’t be such a problem,” he says, “because technological developments will enable people to stay at home. The residential homes that will succeed will be those that cater for the much higher expectations older people now have. Nursing homes will become more akin to hospices for the terminally ill.”
Mergers and takeovers among insurers have meant a rationalisation of LTC product offerings. Following the absorption of Scottish Provident and Scottish Mutual into the Abbey National empire, Scottish Provident has dropped its LTC plan. This single-premium plan was expensive because of its guarantee never to ask for extra money and to return the fund to the policyholder at the age of 85.
Abbey National has decided to keep the offering from Scottish Mutual/Pegasus only. This is a conversion to LTC under its critical illness plan once the age of 65 is reached.
Norwich Union has slimmed its portfolio to best-of-breed products from the former NU and CGU product ranges. But there has been little market innovation in prefunded LTC policies.
But other methods of funding the care of the elderly have come to the fore. Equity release sales have soared since the introduction of Safe Home Income Plans. And there have been creative developments in impaired lives annuities for people with immediate care needs.
Further initiatives can be expected. The whole area of financial planning for the third age still cries out for fresh thinking.