As life expectancy in the UK and the number of retired people rises, the state welfare system faces a greater burden.
But government help is on the decline and the onus is increasingly upon the individual or family to provide for retirement income and medical care. And recent cases have shown the difficulty of capital evaporating rapidly, so transferring the financial burden of care to the next generation.
State pensions have increased by just over 3 per cent in real terms between 1979 and 1993. However, a report by the Government Statistical Service showed that over the same period, a pensioner saw his average income rise by 50 per cent in real terms and the deficit has been entirely made up either through company pension schemes or investment income.
The main concerns of the elderly investor are: to maintain a secure standard of living; to have sufficient resources to cover the cost of the nursing home should circumstances make this necessary; and to be able to provide for their children after their death.
Unfortunately, solicitors come across many people who have used inappropriate schemes, such as high-risk stock market investments, unnecessary and costly insurance structures, home income plans or annuities. For the cautious elderly investor, more appropriate structures exist to provide high income and capital protection against inflation.
The Government may not have increased benefits but it has provided increased tax allowances and overseen the development of tax-driven vehicles such as Corporate Bond PEPs, TESSAs and National Savings products.
Long-term care insurance provides a regular income, either to an individual or direct to the carer (whether a nursing home or family member), and this is payable when the insured is unable to perform a set number of 'activities for daily living' (ADLs). Plans such as these, taken out in advance of contingent, receive payouts tax-free even if paid direct to the policyholder. At around £17,500 per annum average nursing home costs are steep, therefore cover required and premiums are also high. But this is a product worth considering if the capital is available.
If initial capital is limited, a regular premium long-term care insurance could be considered. Alternatively, if savings reach a reasonable sum, it is important to take advantage of all the sensible options available; a well-managed and diversified portfolio of stocks and shares, as well as tax free investment vehicles. Most members of the Association of Solicitors in Investment Management (Asim) believe annuities and home income plans should only be seen as a last resort – usually only for those with no beneficiaries or whose only asset is their house. Even then, it is better to manage the annuity until interest rates are higher again.
Often, elderly people prefer to avoid putting the burden of their long-term care planning on their close family. Here, a solicitor can help as an attorney to arrange tax planning and investment matters and, if required, to take care of other affairs: monitoring or operating bank and savings accounts, ensuring payments of all bills, completing tax returns and reclaims and liaising with government agencies to ensure all eligible benefits are received.