Personal Finance: If the future looks frail, plan for help

Are you worried that relatives may need to pay for care? David Burrows looks at the options

FEW SUBJECTS are as difficult to bring up with elderly parents as the need for residential care. No matter how strong a relationship you have, it is unlikely that you will be thanked for mentioning that your mother or father may at some point need to go into a home.

At the moment there are 3.9 million people aged 75 or over and that is set to rise to 6.3 million by 2030. Many people don't have an extended family living close by, and taking responsibility for family care is less common than it once was.

Anyone with savings above pounds 16,000 will be expected to fund their entire residential care bill. If you need care and you have savings of pounds 10,000 or more, you will be expected to foot a proportion of the bill.

So what can you do to plan for potential care costs? Spend a lot of money on insurance, or hope your elderly relatives will not need to go into a home.

One in four men will need some extra care in old age and one in three women. Of those retiring in 1998, one in six men and one in four women will need full-time care at the end of their lives. These statistics are relatively comforting: as most elderly people will not need residential care, it may be possible to plan to meet home support costs from savings.

It may be useful to discuss long-term care options with an independent financial adviser. By introducing a third party, you are getting relatively objective advice and some of the guilt element can be taken out of the equation. A useful first step is to call Help the Aged's Care Fees Advisory Service on 0800 650065.

There are two types of long-term care insurance: plans to meet immediate costs and normal insurance policies. There is also a third choice - home income plans, which offer older people the chance to release some of the equity in their home.

Immediate-need plans are for people in poor health. They are a form of annuity - you pay a lump sum and get an income in return to pay for care costs. A 60-year-old man requiring payments of pounds 1,000 a month would be looking at an initial premium of anything from pounds 30,000 to around pounds 100,000.

Pre-funded plans are like ordinary insurance policies. You are insuring against something that might never happen, so you take a chance that you are paying out for nothing.

They are more affordable than immediate-need plans. At 60 you would pay a single premium of between pounds 10,000 and pounds 16,000. Some insurers allow monthly premiums, varying from around pounds 30 to pounds 65.

These deals are no good for your elderly parents - it's more likely that you will end up taking out a policy for yourself.

Under a home income plan, or home reversion scheme, a proportion of your home is mortgaged to pay for care costs.

In return you get an annuity for the rest of your life. After your death the loan is repaid from the sale of the property.

A royal commission is currently looking into the future of care funding and it is likely we'll see some sort of partnership between state and individual. Each of us would be expected to pay insurance for care costs and the Government would then guarantee that a larger proportion of our assets will be excluded from the means test applied by the local authority.

David Burrows is deputy editor of 'Planned Savings' magazine.

contacts

Insurance based schemes: Bupa, 0117 984 2300; CGU, 0645 641 000; PPP Lifetime Care, 01789 415 151; Eagle Star, 01242 221 311; Scottish Amicable, 01786 448844.

Home income plans: Stalwart Assurance, 01306 876 581. Useful book: Using your home as capital by Cecil Hinton, from Age Concern. Details on 0181- 679 8000.

Home reversion schemes: Brent Reversion Services, 01752 893045; Home Capital Trust, 01234 340511; Investment Property Reversions, 0181-645 9444.