Special Features

Social care: how should clients prepare?

Olivia Kennedy | Quilter Private Client Advisers
|
2nd October 2020
Quilter Olivia Kennedy
"It is important that clients are reminded that whatever system is put in place, they will still need to save for their own care as it is highly likely they will receive just the bare minimum"

The social care debate has been rumbling on for years with seemingly no end in sight. That was until July, however, when initial proposals were floated by the government for an additional tax on the over 40s to fund later-life care, or for individuals to be compelled to insure themselves against the cost of social care. 

Sources suggested this proposal is being championed by the Health Secretary, Matt Hancock and is considered to be a modified version of the current system in place in Japan and Germany. So how do these systems work? And how should clients prepare?

The German system

Introduced in 1995, the German long-term care insurance scheme features a contribution collected from earnings earmarked specifically for social care. Everyone pays a small percentage from their income, with the cost split between employers and employees when the payer is working, or borne entirely by the individual if the payer is retired. Self-employed workers have to pay the entire premium themselves.

An assessment of needs determines the amount an individual receives for care. This can range between just over £100 a month up to around £2,000. Given this falls short of the amount needed to fully fund care, a substantial level of private contribution is required. The shortfall is made up by user co-payments or means tested social assistance for those on very low incomes.

The Japanese system

Introduced in 2000, the long-term care insurance system in Japan is funded through a mixture of social insurance contributions, general taxation and contributions from individuals. Everyone aged over 40 must pay into the system, and payments are shared with employers if the payer is under 65. If the payer is over 65, their contributions are withheld from pension payments.

After an assessment, Individuals are assigned to one of seven eligibility levels and these levels determine the monthly care budget and service list that an individual can access. In addition to the payments, users must make a capped co-payment when accessing services, with an exemption for those on low incomes. Above their individual entitlement, people must pay 100% of their care costs themselves.

What should clients do?

As the debate around how to create a new social care system rages on, it is important that clients are reminded that whatever system is put in place, they will still need to save for their own care as it is highly likely they will receive just the bare minimum, with the remainder being supplemented by a personal provision.

That level of personal provision won’t be small, even for a short stay in care, so people should be ensuring they are saving not just for retirement but for social care now. Failure to prepare for future care needs can create a heavy burden for their loved ones. Creating a plan on how to meet the costs will go a long way to set their minds at ease.

But how much should someone be saving? Trying to figure out how much is enough is immeasurably more complicated by care costs, and the fact that we don’t know how long we are going to live.

Quilter has calculated the level of savings someone may need to fund both retirement and social care. These figures are based on average cost of care and average care home stay from a Laing Buisson report and the Pension and Lifetime Savings Association’s Retirement Living Standards. Once social care costs are added in, the total amount people need to save is:

 Costs for an individual

Retirement Living Standards Retirement costs prior to care Total costs with residential care Total costs with nursing care
Minimum £15,260 £101,970 £133,430
Moderate £155,260 £241,970 £273,430
Comforatable £334,460 £421,170 £452,630

Costs for a couple

Retirement Living Standards Retirement costs prior to care Total costs with residential care Total costs with nursing care
Minimum £0 £173,420 £236,340
Moderate £152,320 £325,740 £388,660
Comfortable £409,920 £583,340 £646,260

These figures are far from hard and fast rules, and should be more seen as a guideline to provide a rough picture of how much people should consider saving. It is important to remember individual circumstances, such as whether your clients’ parents lived until they are 100, or what level of care they may want or need.

But what they do show is that whatever system eventually makes it through Parliament clients should not be lulled into a false sense of security when it comes to their later life provisions. Much like with a pension, it will provide for the most basic provision, but above that, it will have to come out of their own pockets.

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