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Issue:- 24 October 2013

OVER-55S UNDERESTIMATE THE COST OF CARE BY NEARLY £12K

28% of over 55s in the North West believe they will need long term care later in life but 31% say they cannot afford to pay for it (vs. UK averages of 32% and 38% respectively), according to research by the Equity Release Council (The Council). The study not only exposes a shortfall in the ability of over 55s to cope financially with this scenario, but also highlights a worrying lack of understanding about the cost of care.

24% expect their retirement income will cover most or all of the cost; this is the same proportion as the UK average. But in reality the number of people financially prepared may be considerably less, with the Equity Release Council's research highlighting that over 55s significantly underestimate the cost of long-term care.

The average cost of long-term residential care in the North West is £26,274 per year, but over-55s estimate it to be just £14,457; that is a £11,817 shortfall. This 45% gap in estimated funds illustrates an alarming lack of understanding of the true costs of care.

In fact, data from Aviva's Real Retirement Report reveal that the average pensioner income in this region is £14,988 per year, proving that the cost of residential care is not only higher than most people think; it is substantially higher than they can afford. In addition to this, 88% of over 55s in this part of the country confess to having made no plans at all for long-term care later in life (vs. 85% of the UK).

Over-55s against selling their homes to cover cost of care

Although 18% of over-55s in the North West would consider selling their home and spending the proceeds to cover the cost of long-term care given the choice, the majority of over-55s in this region (89%) would prefer to receive care in the comfort of their own home (vs. UK averages of 19% and 85%). The Council's research demonstrates that the average over 55 in the North West owns a home worth £177,232, opening up the potential to access an average of £46,966 through an equity release plan.

58% of over 55s in the North West recognise their home as their biggest financial asset in retirement (vs. 57% of the UK), so with such a significant amount tied up in property wealth, equity release offers a solution for many who are in need of long-term care but want to stay in their own home.

Equity release could fund nearly five years of domiciliary care

With the possible £46,966 that the average over 55 in the North West could release, they could afford nearly 5 years of domiciliary care. This will be good news for the majority of over 55s in this part of the country (89%) who would prefer long-term care to take place in the comfort of their own home.

The potential equity available can mean those in need of long-term care have other options available to them. The extra income can be used to help ease people through domiciliary care or pay for home modifications, putting off or even preventing the need to go into full-time care.

The Care Bill must ensure local authorities refer self-funders to regulated financial advice

Within the Care Bill there is currently no indication that regulated financial advice will have to be recommended by local Government to individuals when planning for long-term care. Yet The Council's research reveals that only 14% of over 55s in the North West trust their local authority or Council to guide them on long-term care funding (vs. 17% of the UK).

The importance of expert, independent regulated financial advice is emphasised further still, as The Council's research highlights that without expert advice 81% would not be happy to invest in property, 79% would not take out a mortgage, and 65% would not purchase life or health insurance (vs. UK averages of 75%, 73% and 62% respectively). Also, 83% would not take out a pension and 86% would not take out an annuity (vs. 78% and 83% respectively).

Nigel Waterson, the Equity Release Council Chairman, comments:- "Although the ageing population means that the UK is finding itself confronted with a rather hefty bill for care costs in later life, there is an array of options available to those over the age of 55. The topic of care can be highly emotive and this can in turn make the decision making process more difficult. It is therefore absolutely essential that consumers seek expert advice from regulated professionals in order to best assess their options as well as any long-term impact that may ensue.   Homeowners in the North West could release as much as £47,000, should they decide to take out an equity release loan. This sum can help to significantly reduce the financial burdens that those in retirement find themselves facing, and allow them to continue to enjoy the same standard of living to which they have become accustomed. Obviously, equity release is only one of the options available to those in or approaching retirement, all of which should be considered carefully before any decision is made."

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