As the spotlight focuses on long-term care, Greg Becker asks if the French can offer a funding solution apart from immediate needs annuities.
In the UK, the Dilnot Commission has recently raised the profile of long-term care (LTC). While some may question whether it has the answer to the challenge of providing a decent standard of care to the elderly, some may also wonder if disability linked annuities (DLA) could partly help solve the problem. Here we look at France and the experiences of its market.
The Dilnot Commission was tasked with developing a proposal to deal with LTC. There are 8.5 million people aged over 65 in England - one million of them need help with one or more activities of daily living. Full-time residential care can cost about £30,000 a year, depending on location and quality.
An individual with assets worth more than £23,250 currently has to pay for their own care. The Commission proposed that a person's contribution to their own care costs should be capped at £35,000, with the state picking up costs above that amount.
There was an initial wave of support for the proposals when they were released. An ‘anything is better than nothing' viewpoint ensured that there would be support for the Commission's recommendations. While some concerns have been aired since its release, regarding the potentially regressive nature of the proposals, most commentators appear to agree that the stalling by politicians on this emotive topic has to come to an end.
DISABILITY LINKED ANNUITIES
DLAs can be viewed as an alternative to the current market's immediate needs annuities. In a DLA, an annuity is set to rise once the policyholder's health deteriorates beyond a particular point. An IFA recommending a product to someone entering retirement should try to balance the various needs with the funds available. The adviser should balance the applicant's need for an income stream that matches their profile of expected expenses.
It could be argued that in many cases, the client will be best served by a regular income stream for life that is inflation and longevity proof, reflects the joint-life nature of the beneficiaries, and takes into account the cost of LTC. Many would like to see the UK Pension Savings Framework reformed, with its remit extended to allow for the purchase of additional benefits from the annuity.
A DLA is effectively a way to purchase LTC protection out of your pension money. These products are available in some European countries (notably France and Germany) and further afield (for example, Singapore).
