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June 10, 2011 6:25 pm

Choices limited for care home funding plans

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Savers seeking to make provision for care needs in later life – for themselves or family members – will find that their options are limited, with few financial providers offering long-term care plans.

Although quality of care for the elderly has dominated news headlines – as Southern Cross, which operates 750 homes, battles to avoid insolvency, and other operators face investigations over treatment of residents – many find their care choices limited by a lack of funding schemes.

These developments are potentially worrying for those with relatives in care, and those considering care options. The majority of Southern Cross’s 31,000 residents are funded by the state and as such have little choice over their homes.

Currently, individuals with assets of more than £22,000-£23,000, which can include the family home, must pay for their own care, which can range from £25,000-£35,000 a year, depending on the home and its location.

Until a few years ago, those not expecting the state to fund their care could look to a variety options to help finance fees, such as pre-funded insurance policies and long-term care bonds. These products provided a safety net, given that a care bill could climb to £121,000-£178,000 over four years.

But ongoing political uncertainty about the future of social care funding has “caused the private care insurance market to fail”, according to a report published last year by the the Policy Exchange, the thinktank.

“You won’t find a pre-funded insurance plan any more . . . The last provider exited in 2010 along with the big household names,” says Alex Edmans of the Saga Care Funding Advice Centre. “The main plan on the market now is the Immediate Needs Annuity [INA] and only a few are selling them.”

INAs differ from conventional annuities in that their income is tax free and paid directly to the care home, rather than to the individual.

However, a study by the Personal Social Services Research Unit found that only one in seven of the people who could afford the premium for an INA, typically £69,000-£85,000, actually buys one – suggesting they are unaware of how affordable these plans can be, or where to buy them. Unlike the market for conventional annuities, only two providers offer INAs. Even so, advisers insist the market is competitive.

“These providers have different underwriting criteria so you often see a big difference in the rates offered to the same individual,” says Bill Calderbank of Care Asset Management, specialist later-life advisers.

But market analysts do not expect choices to widen for consumers until the government has set a clear direction on the state’s role in social care funding.

Insurers expect that the Dilnot Review into the funding of long-term care, due next month, will recommend that individuals meet the cost of the first £50,000 of care fees, with the government picking up any further bills.

“I fully expect to see innovation in the market providing the solution has a role for the insurance sector,” says Chris Horlick, managing director of Care with Partnership, a provider. “This will inevitably have an impact on price.”

Meanwhile, individuals are advised to seek financial advice on their care options.

“A lot of self-funders run out of cash and face the trauma and disruption of shifting to a cheaper home,” says Tish Hanifan of the Society of Later Life Advisers.

“Even if a care plan is not right, there are other self- funding options that should be considered.”

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