'Pay-when-you-die' loan scheme under fire

Friday 13th July 2012

Pay-when-you-die plans, by which pensioners moving into nursing homes will be able to borrow money from the Government rather than having to sell their property to pay for care, have raised concerns.

Health secretary Andrew Lansley announced that from 2015, councils will lend money to nursing home residents and recover it after death from the proceeds of the sale of the home.

The scheme is intended to stop up to 40,000 people each year being forced to sell their homes to pay for care.

But critics pointed out that homes would still have to be sold eventually to pay, and it was not clear how expensive the loans would be – with the children having to pay the interest.

Michelle Mitchell, of Age UK, said the Government needed to make it clear how the reforms would be funded, and Paul Johnson, of the Institute of Fiscal Studies, said that only pensioners with ‘reasonably significant assets’ would benefit.

Vince Smith-Hughes, retirement expert at Prudential, said people did not realise they would need more money, not less, as they aged, because although average life expectancy has gone up, healthy life expectancy has not.

He said: “People realise that living longer may mean they will need a higher income as they get older, but few of them have made the connection between the risk of ill-health and needing money to pay for healthcare.
 
“Just 20% of people retiring this year have set aside money for any long-term care needs, and this drops to 16% among those aged 65-plus. Less than half of this year’s retirees have planned for the fact that they may need more income in retirement as they get older.
 
“Funding for long-term care has never been more important, as healthy life expectancy is flat-lining.

“Average life expectancy for men over the age of 65 is 17.6 years, and 20.2 years for women, but healthy life expectancy is just 9.9 years for men and 11.5 years for women. Making financial provision for the possibility of ill-health in retirement should be an integral part of the retirement planning process.”