ILC-UK Seminar - The Private Sector's Role in Care - supported by partnership

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The foreword to the Government’s Vision stated that they “want people to have the freedom to choose the services that are right for them from a vibrant plural market”. Of course, for this to be possible there has to be adequate funding to support the development of a care market.

This seminar explored the role of the private sector in paying for care. We explored the different options for private sector engagement in care funding in the future. We considered how these models of engagement can be best made to work and consider what Government needs to do to facilitate. We explored the role of insurance and of equity release.

Les Mayhew presented his paper on the “Role of Private Finance in Paying for Long Term Care”. Chris Horlick from Partnership Assurance highlighted current and potential innovations in insurance. Andrea Rozario from Safe Home Income Plans (SHIP) explored issues relating to asset decumulation while Nick Starling from the ABI contributed with his comments on the role insurers play in care planning and Martin Green of the English Community Care Association (ECCA) responded from the perspective of a private sector care provider.

The schedule for this event was as follows:

4.10pm Introduction from Baroness Greengross

4.15pm Professor Les Mayhew “The Role of Private Finance in Paying for Long Term Care”

4.45pm Chris Horlick, Partnership Assurance. “The role of insurance in paying for care”

5pm Andrea Rozario, SHIP “The role of Equity Release”

5.10pm Nick Starling, ABI

5.20pm Martin Green, ECCA and ILC-UK trustee “The current role and the potential of the private sector to deliver diversity, quality and choice in health and social care services”

5.30pm Discussion and debate

6.15pm Refreshments

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  • The nominal value of houses have outstripped the growth in the nominal cost of care represented in this graph by the RPI plus 1.5%. House prices are subject to boom and bust but have stayed well ahead of care costs. In 1971 the value of a house would have roughly pay for 3.7 years worth of care. In today's prices it would pay for approximately 8.8 years. The planned unlocking some of this wealth is part of the solution but this is not the only means and so we now turn to different products that could be made widely available.
  • Equity release is well known concept – do not need to dwell on. Comes in different forms. As envisaged here it would be a point of need product with payback after death. Top up insurance is like LTC insurance which has never sold in great volume because of cost which is designed to be more affordable bridging the care/income gap. Immediate needs annuities need little introduction. Another point of need product for converting a lump sum into an income stream for one’s remaining life Accelerated life insurance is designed to pay out on entry into a care home and not at death. LTC bonds are designed for the those on very low income DLAs are a form of enhanced pension. Lets briefly look at both as we are least familiar with these.
  • For the technically minded it works by trading off competing risks since LTC risk tends to be negatively correlated with longevity risk
  • Such is the variation in wealth and income that there is no one solution for every individual. This figure shows a map of income an wealth in the UK. The colourer areas show areas on the map where one or more financial products will be most suited. Those with sufficient income are deemed self-funders and they wont need any of these. D for example is LTC bonds and are designed for the low wealth/income groups but anyone is free to buy them.
  • A person’s wealth consist of both income and assets. We need to translate that wealth into a single index that can be used to assess state support. Each line in this graph represents a person with different combinations of income and assets that would be sufficient to pay for 1,2,3,4 or 5 years of care. A care costs of £25k a year. A person with an income greater than this would be assumed to be self funding. Someone at point Q (£10k income and £25k in assets) would notionally be able to fund care for 2 years. Someone at point P, 3 years. This information used to place people into one of five bands: A to E. In this example a person able to afford less than one year’s care would get 90% of costs paid after deduction of income; band B, 70% and so on.
  • Take a simple example First income. In this example I assume just the state pension plus Attendance Allowance worth approximately £10k a year. Others may have occupational or widow’s pension on top so everyone will be slightly different. The slide shows the level of support provided in each case. Rates can be varied in terms of affordability. Individuals would be expected to meet shortfalls from one or more of the products described earlier in the presentation.
  • Evidence to back up Key Message 1
  • Intro slide to set the scene, to get audience on same page.
  • Average cost over 4 years £100k-£140k…
  • Average cost of 8 years residency is £200-280k
  • Evidence to back up Key Message 2
  • In future there may be greater scope for housing assets to support retirement. Home ownership has increased amongst older people. If as expected this trend continues, eventually around 80% of people over State Pension Age could be owner-occupiers. the value of housing wealth owned by people over State Pension Age could increase by around 40% from £907bn in 2009 to £1,274bn in 2030 (in 2009 earnings terms), based on reasonable assumptions about house price growth. UK housing wealth is unequally distributed: the top 10% of homeowners aged over 50 with the most housing wealth, own around 30% of UK housing wealth. Much of the growth in housing wealth is among pensioners who are over age 75. There could be a 70% increase in the value of housing that could be released in households where the head is aged over 75, from £124bn in 2009 to £211bn in 2030 (in 2009 earnings terms). Housing wealth is not equally distributed Housing wealth is unequally spread across the population. Although housing assets are the largest single asset held by many people in the UK, more than 20% of people over State Pension Age (SPA) have no housing wealth. The distribution of housing assets by region, age and other asset wealth show that certain groups are more likely to have housing assets than others. Regional differences in house values can affect the level of support in retirement Housing wealth is not uniformly distributed across the country . The average house price in London is just under £300,000, in the North East the average house price is £112,000. However whilst there is an uneven distribution of housing wealth the cost of care may well still lead to the need to use some of the equity, and poorer households still have many billions tied up in useable equity.
  • The total cost to the state is not given in Govt accounts as funding streams are fragmented and routed through many different Govt depts. Most funding is through LA’s 7.21 billion and the benefit system 4.73 billion and the NHS spends about 4% of its budget 4.23 million on LTC for the elderly. Total LTC funding approx 16.17 billion in 2008 - 2009
  • The older generation have had the ability to amass wealth through housing assets much more so than the younger generation are ever likely to. Student debt will naturally impact on the ability to purchase a property and future house price inflation may not be as high as it has been in the last 10 years. Student debt is estimated to be on average £15700.00 taking on average 12 years to pay off. Raising a deposit for a home is currently more difficult due to the need for lager deposits and lower LTVs The baby boomers in the main have benefited from DB pensions, High HPI and free education. Clearly it is not feasible for the younger generation to then pay higher taxes to cover the cost of this generations long term care needs.
  • Some fear that taking equity release is too expensive, looking at the impact of compound interest over the longer term but often not taking into account the amount saved by not making monthly repayments, and the measurable benefits of this extra disposable income. There is an image of equity release being a complicated process which puts off advisers and customers, making it more difficult for a customer to find advice. No high street presence also has an impact on perception and availability, although over time the INTERNET may change accessibility and in turn customer perceptions. There is still far too much ignorance around the products and lack of knowledge about the safeguards. For instance SHIP members ensure security of tenure via the NNEG and some products allow you to ring fence an amount of equity for an inheritance, or in the case of a home reversion only a percentage of the home may be sold thereby ensuring customers can leave an inheritance if they so wish..
  • High street brands are reluctant to enter the market due the supply issues therefore there is no presence of equity release on the high street where a customer can simply pop in and speak with an advisor. As there are relatively few advisors or companies operating in this market again it gives less choice for the customer. Advisers are not encouraged to enter the market as they see the process as too complicated and not enough return for their effort.
  • ILC-UK Seminar - The Private Sector's Role in Care - supported by partnership

    1. 1. ILC-UK Seminar: The Private Sector’s Role in Care 5 April 2011
    2. 2. Baroness Sally Greengross ILC-UK
    3. 3. Professor Les Mayhew
    4. 4. Private Finance Products in Partnership Model Les Mayhew Faculty of Actuarial Science and Insurance Cass Business School April 2011
    5. 5. Commission on the Funding of Care and Support <ul><li>Terms of reference: </li></ul><ul><li>The best way to meet care and support costs as a partnership between individuals and the state </li></ul><ul><li>how an individual’s assets are protected against the cost of care </li></ul><ul><li>how public funding for the care and support system can be best used to meet needs </li></ul><ul><li>how to deliver the preferred option including implementation timescales and impact on local government </li></ul><ul><li>Report by July 2011 and response by DH in Autumn 2011 </li></ul>
    6. 6. Green paper proposals <ul><li>Self funding : Everyone would be responsible for paying for their own care. The Green Paper rules out this option because ‘people cannot predict what care and support they will need’. </li></ul><ul><li>Partnership : Everyone entitled to care would have a proportion of their basic care and support costs paid for by the state. The remainder would be paid for out of pocket. </li></ul><ul><li>Insurance : Everyone would be entitled to some support just as with option 2. but there would be additional enabling support based on insurance - either state or privately operated. </li></ul><ul><li>Comprehensive : Everyone over retirement age who had the resources to do so would be required to pay into a state insurance scheme (suggested range £17k to £20k) </li></ul><ul><li>Tax funded : People would pay tax throughout their lives which would be used to pay for all the people currently needing care. This is also ruled out because ‘it places a heavy burden on people of working age’ </li></ul>
    7. 7. Strategic issues arising <ul><li>The number aged 65+ will increase from to 9.8m in 2009 to 12.4m 2020 and the number aged 80+ from 2.8m in 2009 to 3.6m in 2020 </li></ul><ul><li>A female reaching 80 in 2001 had a 2.7% chance of reaching 100 whereas a female of the same age in 2020 has a 12.3% chance </li></ul><ul><li>Male and female life expectancies at age 50 appear to be converging at ~35 years by 2020 </li></ul><ul><li>The gap between Healthy Life Expectancy and Life Expectancy is increasing and so potentially more years will be spent needing care </li></ul>
    8. 8. Affordability of long term care based on income and savings by household type Assumed cost of LTC £500 p. wk. Only 400k out of 6.5m 65+ households can afford institutional care for more than 1 year on the basis of income alone, but this increases to 3m if savings are included
    9. 9. House prices versus RPI House prices versus RPI: Chart shows how house prices have moved relative to the RPI. In 1971 the value of a house would have roughly pay for 3.7 years worth of care. In today's prices it would pay for approximately 8.8 years. But not everybody will wish to sell up…
    10. 10. Affordability of long term care based on total wealth by household type If housing wealth is included then 4.6m households could afford care for more than 1 year Of the 1.8m households that cannot afford care for more than one year if housing wealth is included, 0.9m are female
    11. 11. Financial products for LTC <ul><li>3 classes of product: ‘point of need’, ‘point of retirement’, ‘any time’ </li></ul><ul><li>Equity release products </li></ul><ul><li>Top up insurance </li></ul><ul><li>Immediate needs annuities </li></ul><ul><li>Accelerated life insurance </li></ul><ul><li>LTC bonds/trust fund </li></ul><ul><li>Disability Linked Annuities </li></ul>
    12. 12. Why LTC bonds? <ul><li>There is a large population that cannot afford any LTC </li></ul><ul><li>Would pay out only if LTC needed, otherwise go to estate or pay for funeral expenses </li></ul><ul><li>Would pay monthly prizes e.g. like premium bonds </li></ul><ul><li>Would accrue interest just as in a bank </li></ul><ul><li>Evidence tells us that people on low income buy premium bonds, lottery tickets etc. </li></ul><ul><li>Would at least be a contribution and would attune the population to saving for care in old age </li></ul>
    13. 13. How do DLAs work? <ul><li>Works likes a pension annuity and is actuarially fair </li></ul><ul><li>But: </li></ul><ul><ul><li>Higher payments if become disabled </li></ul></ul><ul><ul><li>Even higher payments if go into care </li></ul></ul><ul><li>Can apply to any kind of pension – defined benefit or defined contribution, public sector and state pension alike </li></ul>
    14. 14. Example of a DLA based on an initial lump sum of £100k ADLs = Activities of daily Living Units £000s p.a
    15. 15. What is the market? Income-wealth map and market penetration Key A= Equity release B= Top up insurance C= DLA D= LTC bonds Something for everybody…………
    16. 16. Interfacing products with means testing <ul><li>Current system too complex and not equally applied </li></ul><ul><li>Disincentive to save and deters low cost private finance solutions </li></ul><ul><li>Unfair because people just above the threshold have no state support or limited means to insure against risk </li></ul><ul><li>Its not what people want! (Green Paper consultation) </li></ul>
    17. 17. Principles underpinning new system of public support <ul><li>All people should receive something unless they are fully self-financing </li></ul><ul><li>It should be based on income and assets </li></ul><ul><li>It should not dis-incentivise people to save or purchase products </li></ul><ul><li>It must be fair and transparent! </li></ul><ul><li>It should be affordable in terms of public expenditure </li></ul><ul><li>People can by-pass system if they wish </li></ul>
    18. 18. Proposed system 1. People are placed into ‘wealth bands’ according to the years of LTC they can afford based on both income and assets. Stage 1 Stage 2 P Q 2. People needing LTC receive a proportion of their LTC costs based on which band they are in as shown in example A B C D E P Q
    19. 19. Example <ul><li>Assume value of the state pension and other benefits is worth £10k per year and that care costs £25k a year. </li></ul><ul><li>For illustration, assume no other reckonable income. </li></ul><ul><li>Based on the rates shown a person in each band would receive: </li></ul><ul><ul><li>A: £13.5k (£25k-£10k) x 0.9 shortfall £1.5k </li></ul></ul><ul><ul><li>B: £10.5k (£25-£10k) x 0.7 shortfall £4.5k </li></ul></ul><ul><ul><li>C: £7.5k (£25k-£10k) x 0.5 shortfall £7.5k </li></ul></ul><ul><ul><li>D: £4.5k (£25k-£10k) x 0.3 shortfall £10.5k </li></ul></ul><ul><ul><li>E: £1.5k (£25k-£10k) x 0.1 shortfall £13.5k </li></ul></ul><ul><ul><li>>E nothing (£25k-£10k) x 0.0 shortfall £15.0k </li></ul></ul>Rates are illustrative and actual rates would need to be affordable in public expenditure terms
    20. 20. Case studies Illustrative public support rates: A = 90%; B=70%;C=50%;D=30%;E=10%; others: self funding
    21. 21. Income asset map with bands Income £11,600 Assets £46,000 Band D Public contribution £4,020 Shortfall £9,380 Income £8,600 Assets £25000 Band B Public contribution £11,480 Shortfall £4,920
    22. 22. Income asset map with bands Income £11,600 Assets £60,000 Band E Public contribution £1,390 Shortfall £12,510 Income £8,600 Assets £10,000 Band A Public contribution £14,760 Shortfall £1,640
    23. 23. Income asset map with bands Income £14,600 Assets £100,000 Un-banded Public contribution £ (zero) Shortfall £25,000 People with access to LTC as an employment benefit treated as un-banded Capital limit under present system
    24. 24. Income asset map with bands SEL F- FUNDING MINIMUM INCOME CAPITAL RICH Not eligible
    25. 25. Income and asset distribution % people 65+ by band A – 19.8% B - 2.1% C - 2.2% D – 2.8% E – 3.1% Self funding 69.9% Under present system ~22% could be under the threshold Under new system ~ 30.1% would get something Each point is an actual individual aged 65+ A B C D E
    26. 26. Income and asset distribution % people 65+ by band A – 19.8% B - 2.1% C - 2.2% D – 2.8% E – 3.1% Self funding 69.9% Under present system ~22% could be under the threshold Under new system ~ 30.1% would get something Each point is an actual individual aged 65+
    27. 27. Cohort effects % of individuals by band reaching age 85 in given years Note that the proportion that cannot self fund for more than 1 year goes down over time
    28. 28. Annual insurance premiums based on top up mechanism Policy triggered by failing 3 ADLs (Activities of Daily Living)
    29. 29. Summary of key proposals <ul><li>Control of public expenditure is maintained : </li></ul><ul><ul><li>through the personal cap (e.g. £25k) </li></ul></ul><ul><ul><li>the banding structure and top up rates </li></ul></ul><ul><ul><li>through the unified assessment system </li></ul></ul><ul><li>Equity through universality and equal treatment of people with different means </li></ul><ul><li>Flexibility and choice through the range of products and ways of meeting costs </li></ul><ul><li>Avoidance of gaming: ‘7-year rule’ </li></ul>
    30. 30. Suggested role of the state <ul><li>To: </li></ul><ul><li>Clarify state entitlement based on a unified assessment system </li></ul><ul><li>Provide regulation of products and policy stability </li></ul><ul><li>Make it easier to get financial advice and direction at points of need or contact </li></ul><ul><li>Provide incentives for people to take up private finance products e.g. through the tax system </li></ul><ul><li>Improve the quality and efficiency of care services </li></ul><ul><li>Create conditions for private sector to invest </li></ul>
    31. 31. Timing issues <ul><li>New products will take time to mature e.g. LTC bonds may take 10 years or so to reach a steady state </li></ul><ul><li>Implies that private finance funding mix will gradually evolve with equity release likely to be most popular initially </li></ul><ul><li>Investment in computer systems would be borne largely by private sector providers </li></ul><ul><li>Some public investment in IT might be needed for monitoring and regulation purposes </li></ul>
    32. 32. [email_address] Mayhew, L., M. Karlsson, and B. Ricklayzen, B. (2010) The Role of Private Finance in Paying for Long Term Care. The Economic Journal, Vol 120, Issue 548, F478–F504, November 2010 Karlsson, M., Mayhew L, Rickayzen, B. (2007), 'Long term care financing in four OECD countries: Fiscal burden and distributive effects', Health Policy, 80(1), p.107-134 Karlsson. M, Mayhew L, Plumb.R, Rickayzen.B, (2006), Future costs for long-term care: Cost projections for long-term care for older people in the United Kingdom, Health Policy, 75(2), p.187-213 END
    33. 33. Chris Horlick Partnership
    34. 34. The role of insurance in paying for care today Chris Horlick MD Care Partnership
    35. 35. What exists today? One specialist insurance product, the immediate needs annuity Equity release Investment bonds Pensions and savings Money under the mattress/bank account No pre funded care products available in Britain today
    36. 36. Why? <ul><li>“ Market failure” </li></ul><ul><li>“ Demand failure” </li></ul>
    37. 37. What exists today? <ul><li>A private care and support market of over £5 billion pa </li></ul><ul><li>An insurance market of £100 million pa </li></ul><ul><li>Chronic lack of awareness of the fact that self funders exist </li></ul><ul><li>Chronic lack of understanding that insurance products exist, how they work, how to buy them, how they can help </li></ul><ul><li>Chronic failure in general by the deliverers of social care to signpost their self funding customers to financial advice </li></ul>Why?
    38. 38. Who fails to sign post? <ul><li>Local Authorities </li></ul><ul><li>Care homes </li></ul><ul><li>Domiciliary Care providers </li></ul><ul><li>Hospital discharge managers </li></ul><ul><li>GP’s </li></ul>
    39. 39. Because of a lack of funding advice , many self funders run out of money Source: Oliver Wyman Research 130,000 new care home residents per annum 14,000 get financial advice 68,000 need of financial advice every year 7,000 talk to a qualified advisor 75,000 privately funded 53,000 Fully self funding 22,000 co-funding
    40. 40. The Outcome
    41. 41. The average stay in a care home by a self-funder is 4 years £116k-£168k Laing & Buisson, Care of Elderly People, 2009
    42. 42. 1 in 10 self funders is in care for at least 8 years £232k-£336k * Partnership data
    43. 43. The Care Funding Plan benefits all parties Immediate Care Plan Average premium £85k Average home equity £165k
    44. 44. Individuals face three care risks <ul><li>1. Will I need care and support in old age? </li></ul><ul><li>2.How much will it cost me if I do? </li></ul><ul><li>3.How long will I need it for? </li></ul>Age 80+ at point of need Age 65 to 80 post accumulation Age 45 to 65 opportunity to plan
    45. 45. What else could we look at developing post Dilnot? Re introduce pre funded care products Home income plans for domiciliary care Deferred annuity tail risk for dementia Joint life claim products Pre funded care or life insurance
    46. 46. <ul><li>Name: </li></ul><ul><li>Contact number: </li></ul><ul><li>Partnership is a trading style of The Partnership Group of Companies, which includes: Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), and Partnership Home Loans Limited (registered in England and Wales No. 05108846).  </li></ul><ul><li>Both companies are authorised and regulated by the Financial Services Authority. The registered office for both companies is Sackville House, 143-149 Fenchurch Street, London EC3M 6BN. </li></ul>
    47. 47. Andrea Rozario SHIP
    48. 48. Andrea Rozario Director General SHIP equity release
    49. 49. Introduction to SHIP equity release <ul><li>Trade body representing the providers of equity release plans, accounting for approx 90% of the market in terms of volume </li></ul><ul><li>Established 1991 </li></ul><ul><li>Strict code of conduct for all members </li></ul><ul><li>Aim - to aid safe growth of the market and educate the general public, civil servants, journalists, MPs etc about the realities of equity release as it is today </li></ul>
    50. 50. SHIP code of conduct <ul><li>NNEG – No negative equity guarantee </li></ul><ul><li>Fixed interest rates </li></ul><ul><li>Independent legal advice </li></ul><ul><li>Ability for customer to move without financial penalty </li></ul><ul><li>Clear easy to understand plans </li></ul><ul><li>Full advice process from specifically qualified advisers </li></ul>
    51. 51. What is equity release? <ul><li>Two main products : </li></ul><ul><ul><li>Lifetime Mortgage – from age 55 </li></ul></ul><ul><ul><li>Home Reversion Plans – from age 65 </li></ul></ul><ul><ul><li>Also: </li></ul></ul><ul><ul><li>Sale and Rent back – not age related and not a typical equity release product </li></ul></ul><ul><ul><li>Downsizing – most popular option – 29% of working people according to the PPI intend to sell up and downsize to help fund retirement whilst just 5% currently intend to use equity release products </li></ul></ul>
    52. 52. Housing Wealth <ul><li>Housing wealth is the biggest asset held by the retired with approx £907 bn tied up in bricks and mortar increasing to an estimated £1,274 bn (40%) in 2030. (PPI Retirement Income and Assets 2010) </li></ul><ul><li>Unequal distribution of housing wealth: </li></ul><ul><ul><li>Correlation between general wealth and higher housing wealth </li></ul></ul><ul><ul><li>Baby boomers have more housing wealth than any other generation, older or younger </li></ul></ul><ul><li>Age of a first time buyer, unassisted is now 37 </li></ul>
    53. 53. Costs of long term care <ul><li>Total LTC funding was approx £16 billion in 2008-2009 (Policy Exchange – Careless Report 2010) </li></ul><ul><li>Previous Government projected a £6 billion funding gap for LTC by 2026 </li></ul><ul><li>1 in 4 – 65 year olds can expect to enter residential care at some point in their lives. </li></ul><ul><li>Average lifetime cost of care for a 65 year-old </li></ul><ul><ul><li>Male: £22,300 </li></ul></ul><ul><ul><li>Female: £40,400 </li></ul></ul><ul><ul><li>All: £31,700 </li></ul></ul>
    54. 54. Current LTC System <ul><li>LTC paid for out of general taxation – small contribution from council tax </li></ul><ul><li>Complicated and convoluted system with regional variances. </li></ul><ul><li>Different treatment between residential and domiciliary care – house taken into account in assessment with residential care but not with domiciliary care </li></ul>
    55. 55. Inequality Between Generations <ul><li>Rapidly increasing longevity leading to many issues including the need for care: </li></ul><ul><ul><li>2012 – 2.75 million people will need care </li></ul></ul><ul><ul><li>2040 – 4.75 million people will need care </li></ul></ul><ul><li>Fewer young working people with a higher tax burden </li></ul>
    56. 56. Inequality Between Generations <ul><li>They will also see older people holding most of the political power and wealth </li></ul><ul><li>The able young might emigrate to more attractive economic climates </li></ul><ul><li>The average student debt is approx £15700 which on the average starting salary of £22300 will take approx 12 years to pay off. </li></ul>
    57. 57. Why isn't equity release more popular ? <ul><li>Customer concerns </li></ul><ul><li>Supply issues </li></ul><ul><li>Distribution issues </li></ul>
    58. 58. Customer Concerns <ul><li>Appears to be too expensive </li></ul><ul><li>Complicated process, difficult to find an adviser </li></ul><ul><li>Fear of loosing their home or not leaving an inheritance </li></ul><ul><li>Negative perception compounded by press reports and historical reputation </li></ul>
    59. 59. Supply and Risk Issues RISKS / ISSUES COMMENT MITIGATION / ACTIONS REPUTATION Media has been negative to the point of scaring off brands, distribution and consumers. Progress is being made – respected brands supporting effort e.g. Aviva, SAGA, Age UK. SOLVENCY II As firms tackle uncertainty around Solvency II, their focus is on their core business issues – ER is immature and is generally the junior product line. Action needed to ensure risks /rewards are understood by firms /FSA – so they can be sensibly reflected in capital and pricing. REGULATORY/LEGAL/ EUROPE Short term capital treatment of equity release – potentially disproportionate to the risk. Changes in Europe – gender / distance selling. New FSA lending rules may encourage banks to re-examine current books, which are held by retired consumers. FSA & BoE could review proposition to lighten / change capital requirements. European dimensions add uncertainty, e.g. annuity funding – but UK govt and FSA appear to have this in hand. MORTALITY & PROMISES Consumers/ trustees/ IFAs don’t fully understand mortality, so undervalue some of the promises, e.g. no negative equity guarantees. Consumer education work of CFEB and others. No government proactive support yet, although LTC may be a driver.
    60. 60. Supply and Risk Issues RISKS / ISSUES COMMENT MITIGATION / ACTIONS LENDING/ACCOUNTANCY Accounting basis / changes, IFRS, differences in treatments between banks and insurance firms. Lending criteria by firms and valuing of property is disenfranchising some consumers – limited funding means firms can be risk adverse. Accounting changes / Solvency II all adding to better assessment. House value / volatility impact on consumers and lenders. It tends to short term – rather than longer term solutions – improving capital /reward treatment could transform availability. FIRMS LACK MORTALITY IP Only a few firms are really able to price and value mortality risks. A more mature market and incentives would encourage development. But also markets in trading the risks. CONSUMERS – RISK & REWARD Providers can obtain greater margins /profits from shorter term mortgage products. No profit incentive to support longer term consumer needs. Also Equity release could be seen as under priced / good value, considering the length of the promise. Uncertainty – drives firms and consumers away from long term savings and commitments. Equity release is only starting to be “normalised”.
    61. 61. Distribution Issues <ul><li>No high street lenders </li></ul><ul><li>One or two large distributors, some small advisers. </li></ul><ul><ul><li>Which therefore leads to : </li></ul></ul><ul><li>Difficulty for the customer to find advice </li></ul>
    62. 62. So what is the answer ? <ul><li>Education – A need for clearer understanding around equity release – Financial advice becoming an integral part in the LTC advice process </li></ul><ul><li>More providers encouraged into the market by addressing the supply issues </li></ul><ul><li>Regulator , Government and general view needs to be that housing wealth has a role to play in funding care </li></ul><ul><li>Ease of access to products with incentives such as tax breaks for those using housing assets to pay for care </li></ul>
    63. 63. So what is the answer ? <ul><li>Closer working relationship between industry and Government to work out potential solutions </li></ul><ul><li>More understanding around the inequality between the generations and the personal responsibility to pay for care </li></ul><ul><li>Reframing and rebranding equity release ? </li></ul><ul><li>Specific products for LTC/Domiciliary care – packaged and promoted as part of a solution </li></ul>
    64. 64. <ul><li>THANK YOU </li></ul>
    65. 65. Nick Starling ABI
    66. 66. Martin Green ECCA
    67. 67. Martin Green Chief Executive ECCA ILC-UK The Independent Sector's Role in Care 5 th April 2011
    68. 68. Current position <ul><li>Demographics and increased need </li></ul><ul><li>Financial challenge/funding cuts </li></ul><ul><li>No creative approach on cuts </li></ul><ul><li>Systems in transition </li></ul><ul><li>Separation between health and social care </li></ul><ul><li>Regulation – fragmentation </li></ul><ul><li>Bureaucracy and transactional costs </li></ul>
    69. 69. Opportunities <ul><li>Integration of health and social care </li></ul><ul><li>Creative approaches from the sector </li></ul><ul><li>Diversification </li></ul><ul><li>Development of sub-acute services </li></ul><ul><li>Hubs for the management of long-term conditions </li></ul><ul><li>Efficiencies and outcomes </li></ul>
    70. 70. Contact Details <ul><li>Martin Green </li></ul><ul><li>Chief Executive </li></ul><ul><li>English Community Care Association </li></ul><ul><li>[email_address] </li></ul>
    71. 71. ILC-UK Seminar: The Private Sector’s Role in Care 5 April 2011

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