28 Aug 2014
How to pay for elderly care costs
It isn't fair that the young should have to stump the bill for the elderly and their care.
These are Nigel's solutions to help elderly pay their way through later years, leaving today's younger generation to focus on paying for education and getting on to the property ladder.
Inter-generational unfairness means that the young pay heavily for university education and struggle to get on the housing ladder, while the baby boomers continue to enjoy rising house prices and valuable pensions.
Furthermore the young subsidise the rapidly rising elderly population through the tax system.
There is also a sting in the tail, as the current care system creates uncertainty for the elderly due to its complexity.
I’m sure, like me, you know elderly relatives who have struggled with our complex care system and it’s my personal aim to help governments achieve significant positive reforms.
The terrifying costs of elderly care - £50 billion and rising
The costs of looking after the elderly are staggering. The NHS spends 40% of its £110 billion annual budget on healthcare for the over 65 and we also pay £10 billion each year for ‘social care’, looking after the elderly in care homes or their own houses.
The average cost for residential nursing care in England is nearly £38,000 a year or around £150,000 for someone surviving four years. 44% of people have to ‘self-fund’ their care home costs while another 13% have to top up local authority costs. There’s also over half a million people who pay for care in their own homes. The taxpayer picks up the bill for people who can’t pay, funded by all forms of taxation, including council taxes.
Some useful government’s changes are coming in 2015-2016 following Sir Andrew Dilnot’s insightful review (#dilnot) which seeks to raise standards and address the problems of funding care. It’s a good start, but let’s go even further.
No more public libraries or bin collections
The Barnet 'Graph of Doom' - watch the YouTube video below for its explanation.
The Barnet graph of doom (see clip from the BBC Politics show) projected how local authorities wouldn’t be able to pay for any future local services apart from children’s services and adult/elderly care. Spending on these services is close to local authority revenue and we’re already seeing library closures planned in many places, including Brent, Liverpool and Kirklees.
The coalition’s new capped care system won’t provide much comfort for hard-pressed local authorities. Assessing the huge number of people with a care need or disability could increase local costs. Yet austerity measures mean £1 billion plus of savings has been taken out of the care system since 2010.
Using our windfall housing assets to pay for care
Most people simply haven’t saved anything like enough in pensions to fund care costs. So as the over 65s in the UK have some of the over £1 trillion of housing wealth, there’s an easy answer over how to fund care for the current elderly generation.
It isn’t fair that younger people have to meet a large chunk of care costs through general taxation. We must help the elderly use their housing windfalls to pay for care. We need easier ways for people in their 60s and 70s to free up their housing assets, at an age before they are suddenly forced to pay for care.
So our first solution is downsizing and helping people move to specially designed homes for elderly people. Our publication with Shelter, Let’s House Britain outlined a blueprint for building many more homes for last time buyers, enabling them to free up assets and live in efficient, well-designed comfortable homes.
Our second solution is to provide better financial products that help people release the assets tied up in their own homes. Older people must feel comfortable about borrowing against the value of their homes.
Creating a solution that benefits the whole of society
But we want to see other solutions that don’t just benefit people who have financial assets. Politicians need to take some tough decisions, using more imaginative tax solutions that help redistribute the unfair generational wealth of the nation.
Getting people to save for their care costs?
Pensions auto-enrolment is a great success in getting millions more people to put money aside for the future. But the tax breaks still favour the rich and people still aren’t saving enough for a comfortable retirement. It’s a very big ask to get them to save for the complex, difficult things in life, like old age care. Some degree of compulsion might help people build up an insured fund which could be used for long term care costs?
The death tax: who should pay it?
The coalition’s new deferred payments scheme is being introduced through local authorities next April. People will be able to defer all their care home costs until death using housing assets to pay for them. We're also keen to find a way that people can finance these costs using whole life insurance cover.
We could even take this one stage further if everyone paid a slice of inheritance tax into a social fund to help meet the growing costs of elderly care. This would benefit taxpayers and middle England, where some homeowners with average houses can lose everything on going into care.
It’s difficult to talk about new taxes in a pre-election period. Yet, we need to take bold and imaginative decisions to overcome the financial consequences of an ageing population.