How the value in people’s homes could solve the challenge of care costs in later life

The problem of how to pay for care in later life is a major policy issue throughout the developed world, with the UK no exception. The number of British citizens aged 75 and over is expected to reach 10 million by 2040 and these people will need to have planned for their future in an environment where provision of local services has been constrained. Authors of a new research paper, Paying for Care Costs in Later Life Using the Value in People's Homes, look at possible solutions to the challenge of meeting the costs of care needs.

Understanding that a considerable proportion of personal wealth in the UK is contained within housing assets, the paper's authors consider two new financial arrangements designed to meet the needs of people in different financial circumstances based on releasing equity from property: an equity-backed insurance product and an equity bank that lets a person draw down an income from their home.

The paper finds:

  • The equity-for-insurance policy has an important advantage in that premiums do not have to be paid out of current income, thus removing one of the key barriers to the take-up of long-term care insurance.
  • While as with all insurance products the premium will have been wasted if care is never needed, it is still a relatively cheap way of protecting assets and should give people the peace of mind they seek without eroding their current standard of living. It will also still enable them to leave a bequest.
  • The equity bank focuses on allowing users to have a more comfortable retirement with fewer financial worries and enables them to stay in their own homes for longer by enabling them to pay for the extra costs of care.
  • A consequence of both products is that individuals will on average pass on less to their heirs, but unless the whole value of the home is used, users will still benefit from rising house prices and the risk of a total loss of assets is removed.

Professor Mayhew said: "After the most significant reforms to social care funding in living memory, there is a temptation for policymakers to believe that the mission to reform the care funding system has been accomplished - but that is far from the case. Innovative financial solutions are needed to enable people to live comfortably in their later years without the financial worries of not being able to pay for care or losing their homes."

Duncan O'Leary said: "We have passed a turning point in public policy, where we must accept the need to do more with less. Tackling the issue of social care provision is one of the most important and pressing issues to securing a stable future for Government finances, while ensuring good quality of life for Britons. The innovative solutions proposed within this paper are a first step towards designing a new model for care funding, one based on making the most of assets we have today, to support our needs tomorrow."

Cass and the International Longevity Centre (ILC-UK) will be publishing a series of papers and organising joint events on social care later in the year. David Sinclair from ILC-UK said: "Sadly, Government seems to have kicked the debate on how to pay for care into the long grass. This is a disaster for older people and their loved ones. Innovation in policy and products is vital. As Professor Mayhew recognises, better use of the housing wealth of older people is likely to be a part of the solution to the care funding crisis."