Cost of care exceeds average pension pot size
According to research by LV=, the average length of stay in a care home has increased by 13 per cent over the last decade, from 829 to 955 days. As the typical cost of a year’s care is £28,500, retirees face an potential care expenditure of around £75,000 – a sum over double the size of an average pension pot (£36,800).
Most retirees typically enjoy several years of active retirement, drawing on their pension before they reach a point where they require care. The issue of affordability is likely to be far greater for retirees and their families than these figures show, LV= said.
The gender disparity in pension savings and income means the care cost challenge will be more keenly felt by women.
Some 23 per cent of women approaching retirement have only the state pension to rely on, compared to just 9 per cent of men – but women are more than twice as likely to go into care.
The government recently announced the implementation of the care cost cap would be delayed by four years, meaning it is unclear how much someone will have to put towards their care.
LV=’s research shows that of the adults who have had a parent go into care, 38 per cent said their parents used savings to cover the cost, with 22 per cent saying their parents sold their home to pay the bills.
According to a new Freedom of Information request by LV=, in the past five years over 19,000 retirees have had a charge placed on their property by their local authority to meet the cost of care. These charges are placed on the homes of individuals who don’t have enough savings to cover the cost, but have the requisite equity in their property.
While local authorities cannot ask a retiree’s offspring to contribute toward the cost of their parent’s care, many do so. Some contribute to ensure their parent can stay in their preferred care home, others to cover the basic costs of care. 25 per cent of adults with parents in care say they use their own money to help fund care costs.
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.
“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.”