News from Cass Business School

Putting our long-term health in the hands of the financial services industry

Thursday, 22 October, 2009

The City of London Corporation has today released a discussion paper, Money and Ageing - making provision for Pensions and Long Term Health Costs in an Ageing UK Society,' which was researched by Cass Professor Les Mayhew.
The paper discusses the potential role of the financial services industry in providing a long-term, sustainable solution to the problem of funding long-term care amongst an ageing UK population.
The UK currently spends around £19 billion a year on long-term care with additional support provided through the benefits system - the public sector provides 65% of this funding of which £7 billion is spent on the UK's older population aged 65+.
An aging UK population who are living longer than ever before, combined with assumptions that the price of care and support services will continue to increase, means that the total public expenditure, in England alone, could reach £24.1 billion in 2026.*
The Lord Mayor of the City of London Corporation Ian Luder, who commissioned the report, commented: The current system by which the UK provides health care for its elderly citizens is unsustainable in the long-term, or even the medium-term.
Unfortunately there are no easy answers to this problem. However, with the UK public finances in such a perilous state, it is clear that the private sector will have a far more prominent role to play if we are to avoid a funding crisis of epic proportions in the very near future.
This is an opportunity for our financial services industry to show its positive side, to begin to repair its tarnished reputation and to forge a new relationship with the people of Britain a mutually beneficial relationship built on trust and social utility not on accusations of greed and dishonesty.
The report provides a response from a private finance perspective to the recent Government Green Paper on the future of long term care, Shaping the Future of Care Together,' that was released in July.
According to the Green Paper there are five key problems with the present system. It penalises people who have saved for their old age; the threshold for care is set too high; social care provision is uneven across the country; the system is too complex; and services are poorly organised and not joined up' at the point of delivery.
Professor Mayhew, added: Alongside climate change, the ageing population is one of the most pressing issues of our time not just in the UK, but throughout the developed economies.
There is no doubt in my mind that the financial services industry has a key role to play in the future provision of long-term care for older people that need it but, in order to do so, businesses must have confidence that the system in which they are operating is clearly defined and immune from political considerations.
The government's recent green paper places this critical issue firmly on the legislative agenda and must be seen as a positive step forward.
However, any decisions we take will have a lasting impact on our future health and prosperity and so must be subject to careful, and transparent, public debate this report represents one part of that debate and is designed to ensure we reach a fair and optimal solution that benefits all parties.
The report outlines a number of potential solutions to the current problems surrounding the provision of long-term care to the elderly. These include Long Term Care Bonds' to encourage the lower-paid to save something for their frailest years; top up insurance, disability-linked annuities, immediate needs annuities, accelerated life insurance and equity release. Professor Mayhew also points out that government still has an important role to play in devising a fairer system of means testing, providing greater access to financial advice and changing the system by which care is provided.
During the course of his research, Professor Mayhew drew on his recently completed pieces of work for the Department of Health and for the Cabinet Office that were used to provide input into the Government's Green Paper.
*Source: Funding adult social care in England, Kings Fund, March 2009

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