Using equity release to fund long-term care
Life expectancy continues to rise and in September 2008, for the first time in the UK, there were officially more pensioners in the UK than children (Source: ONS).
Experts are predicting that the cost of long-term care for the elderly is due to double over the next 20 years, making it a key area to cover in any individual’s retirement planning. Age Concern has highlighted the fact that one in four people aged 85 and over will need long-term care in the future. All this raises a key question: how will this be paid for?
With the Government forecasting that the estimated cost of providing care will hit £24 billion a year by 2028, it recently launched a six-month consultation on care reform, examining how the bill should be shared between taxpayers, those in care and families. One of the avenues which can provide some answers is equity release.
Equity release is a means to unlock value from your home to allow you to use the money as you wish, whether for home improvements, to help the family to settle debt or to fund long-term care. One form of equity release, home reversion, allows homeowners to sell a percentage of their property, up to 100%, in return for a lump sum or monthly income installments. They can continue to live in the property for life and, if they still hold equity, share with the home reversion company any rise or fall in the property’s value. Home reversion is increasingly being used as a key part of retirement planning.
There are many reasons for a homeowner to take out equity release. Recent research by equity release product provider, Retirement Plus*, highlights the growing concerns people have about funding their care in retirement.
The study shows that over a third of consumers would use the revenue generated from equity release to fund nursing home care. The findings illustrate that people do not want to be a burden to their families so they are looking to their own resources to ensure they get an acceptable level of care.
The likelihood is that with an increasing number of individuals requiring long-term care, Government support will be limited. Equity release could provides the means to ensure that people can get the care they deserve. These options should be factored into an individual’s retirement planning.
A recent Which? report on care options has suggested that equity release should only be used as a last resort. Unfortunately, the report holds to an outdated view of equity release and fails to acknowledge market advancements over the last few years. As the equity release trade body, SHIP, duly points out, equity release products offer increasing flexibility and offer people options which could vastly improve the quality of their lives. It is, therefore, a logical consideration for someone in examining their retirement planning and long-term care needs.
You should always seek qualified financial advice and discuss your retirement planning with your family, so that they are aware of the arrangements you are considering.
* www.retirement-plus.co.uk17 October 2008