Yvonne Braun, Director of Savings, Retirement and Social Care, ABIOscar Wilde once said: 'The tragedy of old age is not that one is old, but that one is young.' The good news is that life expectancy is rising, which brings with it the challenge of how we fund and prepare for a much longer retirement, including potential social care costs. The question of who is responsible for looking after us if we need care in old age, and what role the industry can play in helping people plan and save for this, has been under the spotlight in recent days.
The industry has been working closely with Government on this issue and the wider retirement income space, following the Statement of Intent which the ABI launched with the Department of Health in January 2014. The Statement set out how Government and industry would work together to ensure people receive appropriate information and advice and to create the right conditions for a larger market in financial products.
Some media outlets reported this week that there was no interest in the industry to launch any care insurance products following the Statement of Intent. It is true that the industry sees little potential in a stand-alone, pre-funded social care insurance product sold during people’s working lives – people in their thirties, forties and beyond have other financial priorities, including paying off their mortgage and raising their children. We have always said that there is no ‘silver bullet’ financial services product for social care insurance. But immediate needs annuities already exist, providing peace of mind at the point of entering residential care that people won’t outlive their assets. And a life insurance product converting into social care cover was launched last year. This is exactly what we predicted in the industry’s work leading up to the Statement of Intent where we said protection products which could convert into social care cover were likely to emerge.
It is also crucial that we avoid looking at the challenge of paying for care in isolation. The Dilnot report itself flagged that “Our view is that given the tax-favoured treatment of pensions, ISAs, and housing, these are most likely to be the vehicles used to prepare for social care costs”. The pensions landscape is undergoing radical reforms following the 2014 Budget. The new landscape provides much more flexibility for people to use their retirement income to suit their circumstances. This will also help people adjust their income to pay for social care costs. But the one-year implementation timetable is challenging - our members are working extremely hard to get ready in time for the implementation from April this year.
It is now vital that we continue to work closely together to create the right environment for people to plan and save for care. We’ve published an update of the progress made so far and the work still to be done since the Statement of Intent this week. It highlights, for example, that the Pension wise service being created to provide impartial guidance to retirees on their retirement choices is a golden opportunity to encourage people to think ahead as to what they would do if they faced care costs.
As the new retirement market matures, the insurance industry will continue to work hard alongside Government to develop products and services to help people better navigate their income needs in later life, including the cost of care.
Yvonne Braun is Director of Long Term Savings Policy at the Association of British Insurers (ABI).