The Scotsman - October 2006
DISCUSSING how your parents are going to be looked after in old age is not the easiest thing to do, and few want to broach the subject of who will pay for the care. But this is a a serious issue for a growing number of families.
We're all living longer while pensions are getting smaller, so budgeting for long-term care (LTC) should be part of everyone's financial planning. Unfortunately it is not.
Recent research from Help the Aged warned that "care-free" baby boomers would hit a care crisis. It revealed that 62 per cent of 45 to 65-year-olds have made no plans for their care, with one in five saying "life is too short" to worry about something that may not happen.
Elderly people in Scotland are in a slightly better financial position than those in the rest of the UK, but contrary to a popular misconception, LTC is not free north of the Border.
In Scotland, people over the age of 65 who are in care only have to pay for accommodation costs, not for personal care as in England and Wales.
The Scottish Executive has provided more than £550 million for personal care since it introduced the policy in July 2002. Individuals receive up to £210 per week - £145 of this is for personal care and a further £65 for those who also need nursing care. This is paid directly by the relevant local authority to the care home.
Some commentators have voiced concern there is a shortfall in funding for personal care, putting its free provision in jeopardy, but this has been denied by the Executive.
A spokesman said: "Free personal care is a fully funded policy, which has benefited nearly 50,000 older people in Scotland. We are continuing to work with councils to ensure that older people receive services in line with their needs.
"Local authorities have a statutory duty to provide community care services to people they assess as needing them. We have provided them with adequate resources to do that, including sufficient provision for free personal care since it was introduced in 2002. It is up to authorities how they deliver services within the resources available."
Although free personal care is an excellent benefit for residents, care homes are businesses that have to make money, and accommodation costs have spiralled over the past four years.
The cost of accommodation has increased by up to 50 per cent in Scotland since 2002. You can't really blame the care homes as their hands are tied and it's really they only way they can generate an income. The average cost of a nursing home is now £510 a week and a residential home is £425 - a substantial amount for anyone.
In light of the cost of LTC, it is vital for people, and their families, to consider their options and it is usually worthwhile to seek professional advice on this as it is a complicated area.
First of all, people should find out if they have to pay for their nursing care by looking at whether it falls under the remit of the local authority (LA) and is means-tested or if it is the responsibility of the NHS and is therefore free. And it is important to check what the LA is including in its means testing.
A person's property should be excluded from the means test, for example, if their spouse, a relative over the age of 60 or a child under the age of 18 is living there,"
Janet Davies, founder and managing director of Symponia, an independent financial advice firm specialising in LTC, said: "There are a lot of emotions involved for families who are having to put their parents into care. They should seek advice on what to do and how to pay for it from someone who is qualified to discuss all the options. There isn't a panacea."
One option is to go for a deferred payment scheme, which is an interest-free loan from the LA based on the value of the person's property. The LA cannot charge interest on this until 56 days after the death of person involved.
Another method to raise money could be to rent out the property. This provides the advantage of the owner being able to hold on to the home and any increase in value, but on the downside this can have stresses, such as difficulty in finding a tenant. Alternatively, someone could sell their house to access the maximum amount of capital, which can then be invested to create a tax-efficient income.
Another route that Symponia suggests is for someone to take out a care-fee annuity, known as an immediate care plan (ICP).
This works like an ordinary annuity in requiring you to hand over a lump sum in return for a guaranteed income. It is personally underwritten and one of the plus-points is it is income tax-free and paid directly to the care home.
There are only four companies offering ICPs: Axa Lifetime, GE Life, Partnership Insurance and Norwich Union, but the last company is closing to new ICP business this month, reducing choice even further. NU has blamed smaller growth in the market than anticipated, meaning it is no longer commercially viable to offer the product.
Statutory qualification for advisers
FROM 31 October, the Financial Services Authority (FSA) is making the CF8 qualification for long-term care advisers compulsory.
But Janet Davies, founder and managing director of specialist independent advice firm Symponia, is concerned that the rules surrounding the implementation of CF8 are "confusing and opaque" and may not fully protect elderly, and sometimes, vulnerable people.
The FSA rules state: that existing advisers deemed competent by the FSA in October 2004 must have CF8 by 31 October 2006.
But any adviser not practising until after October 2004 has two years from when they start working in care fees planning to obtain CF8. For example, an adviser starting today does not have to qualify until October 2008.
CF8 only covers one aspect of financial planning for the elderly, the writing of immediate care plans (ICPs), which are only one of a number of options an adviser may recommend to pay for long-term care.
Davies warned: "The bottom line is that as long as an adviser doesn't actually write an ICP they don't have to be in possession of CF8, despite the fact their client may be 85 years old, in poor health and a resident in a care home."