“There are two main ways of planning ahead to cover the possible costs of social care in later life.
"One is through buying an insurance contract that will pay out if you require long term care, based on some pre-agreed conditions. The payouts could be of a fixed amount or could depend on whatever your actual care costs are in future. Aegon is not surprised that this type of product is not currently being developed. Very few people want to think ahead about possible long term care, of those most hope they won’t need it and only a very small minority are prepared to pay what would be a substantial premium decades ahead just in case. It’s also difficult to calculate a fair premium, especially if payouts are based on costs perhaps 20 years ahead, by which time medical advances may have completely transformed care and associated costs.
“In our view, a far better approach is to plan for social care costs within your retirement planning. We’ve always believed the best way of funding long term care is through income drawdown policies purchased with pension fund proceeds. From April this year, these arrangements become even more flexible, giving individuals complete control over how much they withdraw each year. The tax treatment of funds on death has also been changed, removing a previous disincentive to hold more of your funds back for later years.
This approach doesn’t require you to pay upfront, just in case you need long term care. Instead, it allows you to use your pension fund flexibly without ‘locking away’ a portion of your savings to protect against long term care costs that you may be fortunate enough never to need to pay.
“Rather than being concerned over the lack of an insurance based market taking off, we believe the government should take confidence in the growth of the income drawdown market. We would encourage them to help promote income drawdown as an attractive way of funding flexible income needs in retirement, including social care costs.”
|
