New research has revealed the difficulty many older people will have when the time comes to pay for the cost of care.
Most people pay into a pension during their working life to ensure that they have sufficient income when they retire. However, with ever increasing life expectancy more and more people are being forced to use their pension to meet the cost of long-term care.
What’s more, with the introduction of Pension Freedom, which allows for unlimited withdrawals from a pension, experts predict that an ever increasing number of people will look to use their pension to fund the cost of care, perhaps instead of using their savings or other investments.
But there’s a snag: the average cost of care is now higher than the average pension pot.
The research, conducted by LV=, a provider of pension and retirement products, has revealed that the average cost of care is now £75,000, higher than the average pension pot.
The research also shows that:
- More than twice as many women will need care in old age compared to men
- 20% of retirees have had to sell their home to meet the cost of care
- 25% of children whose parents are in care help with the cost
Time in care rises
The research also showed that the amount of time people spend in care is rising too, making the funding gap more acute.
Over the past 10-years the average period of time spent in care has risen from 829 days to 955; an increase of 13%.
There is little doubt that this increase, plus higher fees more generally, will make it even harder to meet the cost of care.
Combine the statistic that twice as many women will need care in old age than men, with the fact that a quarter of women only have the State Pension to rely on and it’s clear to see why a gender gap is emerging.
Furthermore, and to compound the growing gap, women on average have smaller pensions than men.
The Government’s decision to delay the implementation of a cap on care fees, which of course will hit both sexes, will do nothing to alleviate the problem. Especially at a time when local authorities have placed charges on the homes of 19,000 people over the past five years, to ensure that care bills are met when the property is sold.
Responding to the survey John Perks, Managing Director of LV= Retirement Solutions, said: “The UK is facing an uncertain future on the funding of long-term care, especially with the care cap being delayed. Although many of us leave the workplace in good health, as we are living longer with the average retirement now 17 years long, the likelihood of us needing residential or domiciliary care is increasing. In addition, we are also seeing a rise in the length of time being spent in care. This highlights a very real need for many to consider a more flexible retirement income solution such as a fixed term annuity.”
Parks continued: “Low interest rates, coupled with social care budgets being cut, create a worrying financial backdrop for many, especially those already in retirement as they are currently faced with an open ended bill which makes it difficult to plan effectively to fund these costs. We would encourage those individuals in and approaching retirement, to seek financial advice as to how they can make the most of their pension pots and potentially meet these costs.”