By: Daniel Scott
23.12.2016
23.12.2016
It will not be news to most, that people are living longer and societies all around the world, including our own, are under pressure to adapt.
A study from Imperial College London last year suggested that by 2030, the average life expectancy for people in the UK will be close to 90, which means that we need to embrace the fact that retirement is likely to be extended. The majority of us however, as is human nature, will tend to plan only for the early years – imagining life broadly as it is now – neglecting to consider the potential hidden costs of later life, such as the cost of care.
In the interest of shedding some light on the topic, we partnered with the Centre for Economic Business Research (Cebr) to provide an independent review of the current state of affairs within elderly care, as well as some potential ways we might prepare for its costs. It is a potentially trite observation, but a longer life means a greater likelihood of needing care. An 85 year old is four times as likely as a 75 year old for example, so it’s a prospect we all ought to face head on.
As things stand at the moment, many who need care simply cannot afford it. It is, after all, a considerable amount of money for a year’s stay in a residential home, a little under £30,000 on average based on last year’s estimates. There are few who can boast a combined income from the state and from their own personal or workplace pensions to match that figure (the average pensioner income falls about 40% short), but many of will be able to do if we plan ahead.
Though few have the income to afford care, the majority – 70% in fact – have the wealth, however it tends to be tied up in their homes. It is not unusual to downsize once into retirement: for many this is a desirable option regardless of any financial motivation; the issue is having your hand forced at the wrong moment, selling your property urgently rather than within the pace of your own plans. Keeping in mind, too, that home ownership is dwindling, so a greater portion of retirees from today’s ‘Generation Rent’ may well not have this option as a safety net.
Selling property is just one option amongst numerous. The increased flexibility we have with pension withdrawal, for example, allows us to modulate income at times where there is greater need for readily available cash. Another option worth considering as well, is long-term care insurance. Alongside the state and workplace pensions most of us are already generating, there are opportunities to supplement this with a Self Invested Personal Pension (SIPP) or a Lifetime ISA (LISA), which will be available from April 2017.
To read the report in full, you can request a copy here. If you would like to read more about any of the topics covered in this article, you will find educational resources around the subjects on our website, or, please do not hesitate to contact a member of our Wealth Planning Team.
