In a recent report commissioned by Killik & Co, the Centre of Economic and Business Research found that the average cost of care in nursing homes stands at a phenomenal £38,000 per annum. This figure is far in excess of the standard pensioner’s income; irrespective of your age, this has some serious financial implications for all of us.
Britain’s Ageing Population
One of the greatest contemporary threats to Britain is the rising life expectancy of its population. Although this may sound like a feat that the average UK citizen should celebrate, it has worrying consequences for the population as a whole.
Today, the median age of Britain’s population far exceeds the figure that would have been cited even five decades ago. For the first time in the history of our country, the percentage of the population aged over 65 outnumbers those aged below 16.As a result, the number of people reaching retirement age outweighs the number of young adults ready to replace them in the job market.
This problem is exacerbated by the retirement of the ‘baby boomer generation’; those adults born between 1946 and 1964. The cessation of war in 1945 saw birth rates soar, with 17 million babies registered during this period. Those children have now reached retirement age, and the effect on society and the economy could prove to be disastrous.
As it stands, each pensioner in Britain is supported by 4 adults of working age. The influx of retirees as the baby boomers age will see this figure drop to an estimated 2.5 working adults per pensioner by 2035, and just 2 by 2050. This is known as the dependency ratio, and the higher it is, the greater the economic strain on the nation and its resources.
The Care Act
Britain’s ageing population has seen the care industry boom, with the cost of care becoming increasingly excessive. Current research suggests that a place in a nursing home will set you back around £38,000 per year.
In response to this phenomenon, the Government formulated the Care Act, which is due to come into force in April 2016. The Act will impose rules and regulations regarding care costs in an attempt to curtail dramatically rising prices.
As it stands, the high price of care means that many pensioners and their family members are forced to use their savings and investments to fund their continued care. Although your later years may seem a long way off, rising later life costs, and their knock-on effect on relations, means that the financial implications are something we should all be considering.
In and of itself, the Care Act places an important emphasis on the issue of later life costs. However, as a solution, it remains ineffective. The Act works by introducing a cap on maximum costs, set at £72,000. In addition, the cut-off for local authority support will rise from £23,250 to £118,000, meaning that more people will receive government support.
Unfortunately, this £72,000 threshold is set too high for most people to feel any benefit. The typical cost of staying in a nursing home is already below this value, at £56,700, as is the average cost of residential care, at £68,800. These values force many pensioners to sell their homes to fund their stay, or use their savings or other forms of wealth, and this will not change.
Although more people will benefit from local authority support, the majority will still be left to fund their own later life costs, as the average household wealth is greater than the threshold figure of £118,000.
The Care Act will undoubtedly benefit some of us as we age, but the majority must still consider how to implement a sustainable funding system to cover our long-term care costs as the years pass. For most of us, these will be our responsibility, meaning that rather than relying on the government, we shall we have to find our own solutions.