Older people have benefited from the pension freedoms introduced last April but most are neglecting vital long-term care costs.
Most people who have dipped into their pension have not given any thought to how they would cover the cost of long-term care.
Research by Citizens Advice has found that three in five people who have taken advantage of the new pension freedoms to withdraw money from their pension pots have not made any provisions for their future care costs.
The survey found that just 16% of people who have accessed their pension since April 2015 have budgeted for care costs that they may have to face when they are older.
A further 23% haven’t budgeted for it but say they have a backup plan such as equity release or selling their home.
But an astonishing 60% admitted they had not thought about how they would pay for any future care they may need.
Get a free life insurance quote today
Care is crucial
Currently around four million older people, nearly half of those are over 65, have care needs. These costs can be paying someone to help in the home or moving into a residential or nursing home.
“Care costs can be a heavy financial burden that many people are unprepared for,” says Gillian Guy, chief executive of Citizens Advice.
“It is unsurprising that many people in their fifties are not thinking about how they will pay for care costs when the need for this could be 10, 20 or even 30 years away. But this issue does need some attention, otherwise people risk dipping into their pension now only to find they need some of the money later.”
Get a free life insurance quote today
Average cost of care
New research by Prestige Nursing + Care shows that the average annual cost of a care home has risen by £1,536 over the past year to £30,926. But the average pensioner only has an annual income of £14,456, meaning they are unable to meet even half the cost of care.
“It is particularly alarming that care home costs have risen almost ten times as much as pensioner incomes in real terms, with the result that older people will find the challenge of paying for care even more out of their reach,” says Jonathan Bruce, managing director of Prestige Nursing + Care.
“Cuts to social care now also mean the vast majority of people will have to find the funds to cover the cost of care themselves, which makes it more important than ever that people start to plan their care in advance.”
Get a free life insurance quote today
How costs have risen
Here’s how the annual cost of a care home has increased since 2012.
|
|
2012 |
2013 |
2014 |
2015 |
2016 |
|
Annual cost of a care home |
£27,404 |
£28,367 (+3.5%) |
£28,666 (+1.1%) |
£29,389 (+2.5%) |
£30,926 (+5.2%) |
|
Annual pensioner income |
£13,208 |
£13,799 (+4.5%) |
£13,993 (+1.4%) |
£14,300 (+2.2%) |
£14,456 (+1.1%) |
|
Annual shortfall |
£14,196 |
£14,568 (+2.6%) |
£14,673 (+0.7%) |
£15,089 (+2.8%) |
£16,470 (+9.1%) |
Call for Government intervention
Citizens Advice have called for the Government to step in and help educate people about the cost of care when they are older.
“Getting the right guidance is key in helping people to think about and plan how they will fund their retirement – including costs which are more tricky to consider, such as care fees,” says Guy.
“There is also an opportunity for local authorities to help people plan ahead for future care costs, by providing clear information about how funding for care works and how much it costs.”
Get a free, no obligation private medical insurance quote with loveMONEY today
Essential pensions news:
Pension double whammy hits thousands
Got a final salary pension? You must read this