There is a huge disparity between retirement income and long-term care costs, and we need to address it, says Jenna Gadhavi
Longevity is a much discussed issue in the pensions industry, and is one that can impact pension provision a great deal. But what we don’t talk about so often is the quality of life in those later years, and the need for long-term care.
On average, the elderly can expect to pay around £29,250 a year in residential care costs, rising to over £39,300 a year if nursing care is necessary. (Source: Laing & Buisson Care of Older People UK Market Report 2014/15)
But with research published earlier this year by Prudential finding that people retiring in 2016 expect their pension savings and investments to produce an annual income of just £17,700 - that’s quite some shortfall.
So to what extent should pensions policy and long-term care be intertwined? This was a question raised at the Westminster Employment Forum earlier this week, with many of the speakers wading into the argument.
At the moment, policy is being developed in silos
With the very purpose of pensions being to fund old age when working is no longer an option, surely it makes sense to save for long-term care as part of this?
At the moment, policy is being developed in silos. Long-term care is a Department of Health responsibility, with pensions falling to the Department for Work and Pensions to deal with, albeit with some control from the Treasury. But funding later life is a big challenge in the UK, so why not look at ways to address it head on, rather than leaving generations to come sell their properties and see savings they’d hoped to pass down as inheritance dwindle away paying for long-term care costs.
There have been calls for auto-enrolment to be extended to fund long-term care in some way. Is compulsion the answer? Auto-enrolment is certainly working for pensions, so why not for the provision of long-term care? But how could this work in reality?
One challenge that would create, is that any system that makes long-term care provision compulsory would also have to tackle those instances where it is not actually used in the end.
Integrating long-term care with saving is an important challenge, and we need a holistic, joined up approach if we’re going to succeed in tackling an issue that is only likely to become more pressing as life expectancy increases.