The real cost of caring

You've just given your eldest son a deposit for his flat at university. Your daughter is off on a school skiing trip to New England, and you've just been told that Johnny Junior is headed for four Threes at Key Stage Two, which means you'll have to find the money for school fees in September.

And then mum, who lives with you, and owns half your house, has a stroke and your wife says she just can't cope. And they say life begins at 40.

The most difficult act many of us face today involves not juggling home and work, but counterbalancing the demands of different generations. The Royal Commission on Long-Term Care, which reported this week, sets out a blueprint for resolving many of the issues surrounding caring for older generations.

The Royal Commission proposes to separate nursing and personal-care costs from those for board and lodging. It suggests that the cost of all help with washing, dressing, feeding and other assistance should be paid for by the taxpayer. Furthermore, only people with assets of pounds 60,000 should be required to contribute towards the costs of the other so-called "hotel" charges.

The immediate response this week of Frank Dobson, the Health Secretary, was that more "informed debate" was necessary. A spokesman for Age Concern says: "Have you seen how many people the Commission consulted? The list is as long and as impressive as it could be. There is no one left to talk to.

"We have been waiting for five years at least for this report. Many people have been putting off taking decisions about whether to sell their parents' home. But it's quite clear now that this is nothing like the final chapter to the whole saga."

What is the scale of the problem? Age Concern estimates that of Britain's 10 million retired, only one in a 100 will need long-term care before the age of 75. Even over that age, and up to 84, only 6 per cent might find themselves permanently resident in a nursing home. But once we hit 85, one in four of us will be unable to live alone without full-time care, and that figure rises each year thereafter.

Meeting that cost, anything between pounds 250 and pounds 400 a week, can prove a huge financial burden for families, and many feel confused and resentful about who must foot which bills. If you need nursing care following a heart attack, for example, then your care will be paid for by the state. But if you suffer from Alzheimer's, you have to pay the bill yourself.

If you have assets, including your home, of less than pounds 10,000 you can still look to the State for support. Between pounds 10,000 and pounds 16,000, you must pay towards your care. But above that ceiling, you are on your own.

Experts believe the enormous cost of implementing the Royal Commission's proposals, between pounds 800m and pounds 1.2bn a year, will deter the Government from implementing them.

Yet the insurance industry broadly supports the views of campaigners that the entire issue must be resolved soon. It is, not surprisingly, concerned that until this happens, people are not buying long-term care insurance. Bupa's Geoff Brown explains: "It would be great if the health care part of long-term care is free in future as it would dramatically cut the cost of insuring against nursing-home care.

"My worry is that far from the position being clarified, we are still in a limbo, where people are reluctant to buy insurance because they don't know what they're insuring against."

The report is emphatic in its rejection of insurance as a remedy for the problem, because those who need it most are least likely to be able to afford it. It says: "Private insurance is intended to bridge the gap between an individual's income and the cost of care. This means that people with lower incomes have a bigger gap to bridge, so must insure for higher amounts. They are therefore less able to afford the premiums."

The other insurmountable problem is that those who need solutions to long-term care needs now, may have left it too late for insurance to help, though younger people could protect themselves by taking out a policy 20 years before they're likely to need it.

Yet despite all the concern, only a small number of us is likely to need it. Despite an ageing population, Age Concern estimates that only an extra 100,000 people will need any full-time care with each decade that passes.

Nevertheless, some 40,000 are forced into selling their homes to pay for care each year, even though 70 per cent of the 500,000 residents of nursing and residential homes are paid for by the State under the present less- than-generous regime.

People who wish to guarantee their independence in old age face three options: an immediate plan, a bond-based plan, or a risk-based plan. An immediate plan works like an annuity, you hand an insurance company a lump sum and it guarantees to make payments over an agreed period.

A bond-based plan is a hybrid investment and insurance plan. You invest a substantial lump sum, and insurance premiums are paid from the capital growth.

Finally, a risk-based plan works like any other insurance policy, only the monthly premiums are somewhat higher than with a typical contents policy. A 65-year-old woman would have to pay pounds 70 per month to buy pounds 10,000 of annual cover, or pounds 100 a month for an element of index-linking. The figures are a little lower for a man.

The Commission did look at equity release schemes, but these are often of most profit to the lenders selling them. The report concluded that the most promising use of equity release was where individuals could use their homes to buy care, perhaps by exchanging one home for another.

But for families facing tough decisions now about what to do with mum or dad's home, the best advice probably is to sell it and invest the proceeds wisely, so that income can pay for the nursing-home bills. But then, who breaks that news to mum?