THE PRICE OF GETTING OLD

Getting old now costs money. Many people are simply unable to save enough to cover the costs of living to a ripe old age and the state is facing a similar problem. Even looking at borrowing through loans can be challenging when there is no regular income to make repayments.

The average cost of residential care is now well over £25,000 per year. This figure rises to over £35,000 per year if nursing care is also required. Consequently, a few years in care can eradicate savings at an alarming rate, meaning that ultimately, the state will have an additional burden to cover.

Compounding the issue is the fact that the baby boomer generation (typically those born in the 60s) have not been saving sufficiently as they earned to provide a suitable pension. Indeed, many have taken the opposite approach and have taken out loans to fund current lifestyle options.

That said, the increase in average life expectancy caused by better healthcare and standards of living, have meant that annuity rates have dropped, so any saved funds have generated less life time income.

The government have not exactly helped or encouraged people to save for their old age. Gordon Brown’s notorious raid on pension savings in the late 1990s ripped at least £5bn per year out of pension savings.

Successive governments have done little to encourage saving for the future or to curb the cost of public sector pension schemes that are largely unfunded and paid from current taxation.

The position will get worse before it gets better. Although some reforms have been announced, they merely scrape the tip of the iceberg. With fewer working people and a growing elderly population, the sums simply do not add up.

There is also a growing sense of unfairness in the whole system. Those that have saved and been careful throughout their lives are being expected to pay for their own care, whilst those that may have contributed little or saved nothing get care paid for by the state.

Whilst there has to be a basic provision, those that have saved should not be unfairly treated else it will result in a general sense of ‘why bother?’

Increasing focus is being made on providing care at home rather than in a institution. A couple of hours’ care provision in the home can still add up to £12,000 cost per year.

State support is available, but the level depends on how much in the way of capital assets a person has. If they have less than approximately £14,000 (£22,000 in Wales), then the state will provide funding in full.

Where assets are over approximately £23,000 (£22,000 in Wales), then no state assistance is available. The fragmented devolved government approach has already opened differences in what can be claimed and is available.

But many people now own their own homes and by retirement age, this will typically be mortgage or loans free and worth considerably more than the £23,000 government support limits.

Whilst growing property prices over the past 30 years have helped boost personal wealth, cashing in on a capital asset can be difficult. Especially at a time when property prices have softened and the loans offerings are well reduced on recent years.

However, a number of loans based schemes have been developed over recent years to help elderly property owners release cash from their homes without the need to move out. Also, moving to a smaller property and renting out an existing home can generate income from a fixed asset.

Equity release loans are a way to get cash value from a property. One of the advantages is that no more than the property value can be borrowed, so there is no lasting debt burden passed to family members.