The financial advice industry is made up of various different areas including client planning for later life and retirement.
Advisers help clients with funding costs for retirement and plans for inheritance.
Another area clients need help with is social care costs. The social care system is broken in the UK – as the government has failed to tackle the large problem.
There are many different types of care including: residential care, nursing care, dementia care, care in your own home and independent living schemes – all of which need funding.
Enter the financial advice market. What can and does the industry do to help people plan for social care costs?
Complex and confusing
Alastair Black, head of industry change at Abrdn, said: “There is no doubt the whole areas surrounding social care can be complex, confusing and worrying for many, especially as it can often end up being a very emotional time for families. Within the current rules we have suitable saving and protection products to meet individual circumstances. But what we do need is for the rules to be simplified.
“While the changes last year help in setting a cap there are too many additional rules around it – eg, the cap not covering bed and board – which means it is almost impossible for consumers to understand.
“Given this complexity, advice is critical so customers can properly plan for all the costs they may face. Simplification of the rules won’t remove the need for advice but, it should make the financial implications easier to understand so the adviser can put a greater focus on helping their clients deal with the wider emotional and family challenges.”
Alice Watson, head of marketing, insurance at Canada Life: “The advice sector has a pivotal role to play in helping clients think about the future, which includes the possibility of funding later life needs both for themselves and their loved ones.
“As a sector, we need to find ways to encourage more people to seek guidance and advice and that will also involve building more capacity into the system.”
Products in the market
The industry is innovative and can be inspired at times to cater for all clients’ needs. Are more products in the market needed to help with social care or are the products there already?
Robert Young, director and consulting actuary at Hanover Pensions and Financial Management, said: “The financial advice sector can and does help clients to plan for their later years, including the funding of any future care needs. An immediate needs annuity is one of the tools that can be purchased and used to pay for client’s lifetime care.
“This single premium policy is expensive and can only be purchased when a client is either in, or about to go into a care home. Therefore, this requires the client to plan and set aside capital for this future expenditure as part of their longer-term financial planning. Another drawback is that as the amount of care required is unknown, clients may risk not getting back as much as they initially invested.
“For homeowners there is the potential to use equity release; either to pay the care fees directly or possibly to purchase an immediate needs annuity. The big step required is to link this with pension funding. If care should be needed at a young age access to pension funds, even before age 55, should be permitted.
“If in later life and pension already in drawdown, then additional flexibility and potentially additional tax concessions should be made available if the access to the pension fund is to fund care home costs.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “The idea that people are forced to sell their homes to pay for care is a political hot potato. The fact that homeowners have that extra reservoir of wealth can help support them through retirement and into their later years is a major positive for them because it can be used to give them more options and a higher standard of living.”
