The landscape is changing – how will you plan for your retirement?
April is with us and the pensions reforms have come into effect. Planning for retirement has become a lot more interesting. It is also a huge opportunity for new forms of protection products to fund long-term care. At the beginning of this year The Centre for the Modern Family’s report drew attention to the extent to which people remain anxious and uncertain about how they will fund their later-life costs. More than a third of people say they don’t know or haven’t thought about how they will survive financially in retirement. Amongst people who have thought about it, property and investments are the most likely source of finance for later-life costs. But the times are changing.
In April the deferred payments scheme has been launched. The Government will fund a two stage consumer awareness campaign. Phase 1 will focus on informing carers and consumers at or near the point of needing care about national eligibility criteria and the availability of the scheme. Phase 2 will be a general awareness campaign based around the changes being introduced in April 2016: ie the care cost cap, the increase in means-testing thresholds, and the need to plan ahead to meet the cost of care.
The scheme will be available from all councils across England. A deferred payment agreement is an arrangement with the council that will enable people to use the value of their home to help pay care home costs. For eligible people, the council will help to pay care home bills which will be repaid when the individual chooses to sell their home, or until their death. A deferred payment agreement means that people should not have to sell their home in their lifetime to pay care home bills. The council will decide on eligibility but national rules state that the people who will be eligible will be those who are receiving care in a care home (or going to move into one soon), are home owners and have savings and investments of less than £23,250 (not including the value of the home or pension pot). The amount that can be deferred will depend on the value the home and an ‘equity limit’. Under the scheme this will be around 80% to 90% of the equity available in their home, which is quite high. Every council is entitled to charge an administrative fee for setting up a deferred payment agreement. The council can charge interest on the amount owed. The maximum interest rate they can charge is currently 2.6% and will be reviewed every 6 months. Interest is charged to cover their costs and not to make a profit. Individuals on the scheme can continue to make gifts to children. But a deferred payment agreement for care costs will always need to be repaid – either by the sale of the home after death, by someone else, or by the pay-out from a life assurance policy.
There are no duties on local authorities to identify the people who would be likely to benefit from regulated financial advice in joining the scheme and care planning more generally. But in practice, financial advisers should get on the front foot now and work with local authorities to ensure that when the changes come in people are aware of their services.
The landscape is changing. People will become much more aware of their options and responsibilities. And that includes families worried that their elderly relatives will take out deferred loans in the future as well as immediate needs solutions. And as we move to the cap and a very different world of retirement, the scope for innovation and the role of insurance must surely grow.
Written by Richard Walsh. First published in Cover Magazine, February 2015