Five reasons why financial advisers can help fix the social care problem

Insights Hub asked Tony Mϋdd, protection expert at St James’ Place Wealth Management, to tell us why social care is an issue that financial advisers can no longer afford to ignore.

Even before Prime Minister Boris Johnson announced his plans to increase National Insurance (NI) to help pay for the NHS backlog from April next year, social care was already widely regarded in the financial advice community as an issue that desperately needed attention.

Prior to the Covid-19 pandemic, the government promised an overhaul of social care provision involving a combination of state and private support to help tackle its funding problem¹. The pandemic has since put the NHS under unexpected levels of pressure, leading the Prime Minister to opt for a NI levy that will make an additional £12bn a year available for health and social care combined².

However, while this might go some way to addressing a problem that would alone require an estimated £8bn a year to solve³, St James’ Place protection expert Tony Mϋdd believes that rather than offsetting the need for protection, the government’s latest plans have heightened the opportunity for financial advisers to discuss social care with clients. Here are five reasons why.

1. This issue can no longer be ignored

“People are more aware of the social care problem than ever before,” said Mϋdd. Recent press attention has put it into the spotlight again. “It’s unlikely that an IFA would encounter a client that is unaware that they will need to consider how to fund their later life care at some point,” he added. “And this issue is not going away.” Age UK analysis from November 2020 showed as many as 1.4 million people aged 65 or over in the UK receiving some sort of care. However, according to St James’s Place’s recent ‘The Social Care Report’, 25% of its clients who are 75 or over found the current system to be ‘unfair and unsustainable’. “With this in mind, all financial advisers should be equipped to support their clients not only in terms of how they fund their present and future care needs, but also in helping them understand and navigate the complexities of the current care system,” added Mϋdd.

2. The cost of later life care is likely to be far more than the £86k cap

Research based on Alzheimer’s Society from 2018 showed that 50% of the public believed that dementia care is free on the NHS⁴. This is despite people with dementia typically spending £100,000 on care over their lifetime. A figure that the vast majority (87%) of the people surveyed were unaware of. In addition to this, Mudd estimates that the cost of privately funded care is more realistically going to be closer to £250k, potentially putting a £164k shortfall between that figure and the £86k lifetime cap to be brought in by the government⁵. “The £86k figure relates to the cost of personal care and therefore does not account for normal living expenses, accommodation costs and other variable factors,” he said. “The cap only accounts for the catastrophic risk element, whereas having the right form of protection in place could at least provide a lump sum to help someone through the rest of it.”

3. This is not only a care funding conversation – it’s also about intergenerational wealth

While much of this discussion centres around an immediate need to fund for later life care, sometimes overlooked by IFAs is that this has rapidly become an intergenerational wealth issue too, Mϋdd pointed out. “If an adviser is working with a family now, they should be asking parents about how they intend to fund their own care later down the line, if, say, for example, the grandparents are planning to sell their property to pay for theirs. With that inheritance money gone, what are they going to do?” Alongside their own long-term care insurance solution or if life insurance is no longer available to them, Mϋdd also suggested that putting in place a protection policy for their children could also help to safeguard a family’s future wealth.

4. Financial advisers can use this to retain loyal clients – and acquire new ones too

After establishing that this conversation is one related to intergenerational wealth, an IFA can then not only use this as a way to ensure the continued wealth of clients, but for future generations too. Research has shown that there is a total of £591bn worth of unreleased equity owned by the over-50s in the UK⁶. “While it was the case that Boris Johnson promised that no-one would have to sell their home to pay for care⁷, what wasn’t mentioned was how the use of Equity Release to pay for later life care might impact potential beneficiaries,” said Mϋdd. Helping a family navigate this challenge through a holistic approach to financial planning – with protection at its bedrock – would help maintain the loyalty and trust of clients over multiple generations and beyond, he added.

5. Long-term care insurance options do exist

While there might not be many examples of long-term care insurance solutions available in the market, they do exist, Mϋdd pointed out. To sit alongside LifestyleCare Cover, Vitality launched a world-first benefit in 2019 named Dementia and FrailCare Cover, designed to support people as they prepare for their later years. An integrated product, available via Serious Illness Cover (SIC) at no extra upfront cost or additional underwriting, it ensures your clients would continue to have protection for later life illnesses after the term of their SIC has ended – for up to half of their remaining cover up to £100,000. Should they choose to select Dementia and FrailCare Plus, a paid-for option, they would be allowed to take all their remaining cover into later life once their SIC term ends – up to £200,000 to provide extra security. This would go a long way to helping your client fix their own social care funding problem, should it appear one day in the future.

Find out more about how Vitality can help your clients plan for later life care. 

Sources:
1. https://www.cps.org.uk/research/fixing-the-care-crisis/
2. https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care/build-back-better-our-plan-for-health-and-social-care#our-new-funding-plan
3. As estimated by Damian Green in his 2019 paper for the Centre for Policy Studies: ‘Fixing the Social Care Crisis’
4. Alzheimer’s Society comment on dementia care – https://www.politicshome.com/news/uk/health-and-care/social-care/opinion/alzheimers-society/99262/budget-2018-dementia-charity
5. https://metro.co.uk/2021/09/13/why-the-86000-cap-on-care-costs-is-misleading-and-people-could-pay-much-more-15227561/
6. Canada Life, Solving the Social Care Funding Crisis, February 2021
7. Boris Johnson, PM Economy Speech, June 2020