Personal PensionJan 30 2015

Pension reforms to benefit long-term care

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Pension reforms to benefit long-term care

Looming pension reforms may boost people’s ability to fund their own long-term care needs, providers and advisers have said, as they warn that long-term care issues are getting overshadowed by the main thrust of the changes.

Last autumn, the government’s older workers’ champion Ros Altmann commented that the changes, including removing the 55 per cent tax on pensions in the event of death before 75, could “kick-start care funding” by encouraging people to leave money in their pension funds.

Kay Ingram, divisional director of national adviser LEBC Group, stated: “Those who already have family members in care need to understand the changes and all the options they have and will have after April next year.

“Planning for care costs is a highly complex area that requires an understanding of care fees rules and benefits, investment markets and family dynamics.”

She warned that there is no single product solution and the advice has to be reviewed as care costs needs change.

LEBC’s care fees advice offers an assessment report helping the elderly and their families assess funding options, looking at available state benefits, disregarded assets, power of attorneys and wills, inheritance tax implications and self-funding options.

Steven Cameron, regulatory strategy director at Aegon, explained that the predominant way of funding long-term care is through buying an insurance contract, based on some pre-agreed conditions.

Development of this type of produce has stalled, as very few people want to think ahead about possible care and only a very small minority are prepared to pay what would be a substantial premium decades ahead.

“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,” he added.

Aegon said its view is that planning for social care costs within retirement planning is a far better method, through income drawdown policies purchased with pension fund proceeds.

Mr Cameron stated: “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.”

He encouraged the government to help promote income drawdown as way of funding flexible income needs in retirement, including social care costs.

Meanwhile, Zurich’s recently revealed proposition plans for April included a specific long-term care solution that supports customers who are looking to protect themselves for future care needs, helping advisers manage their clients’ risks in the area.

peter.walker@ft.com