Value of home 'should fund care in old age' Compromise urged over funding care of elderly

The Government should initiate a new equity release scheme to allow elderly people to use part of the value of their home to cover their long-term care, a left-of-centre think-tank said yesterday.

For an average pounds 60,000 home, a couple might have to give up about 45 per cent of its value - less if it was worth more, more if it was worth less - with a lower percentage for single people.

But the cash would provide an insurance which could guarantee cover against the cost of long-term care. The home would only be sold on death and a guaranteed proportion of the home's value would be passed on as an inheritance.

The call to create Peris - partial equity release insurance schemes - came from the Institute of Public Policy Research, as it warned that the costs of long-term care, both in people's own homes and in residential and nursing homes, was set to escalate dramatically. Even allowing for economic growth, costs would more than double in real terms by 2031, taking about 5 per cent of national income, against 1.8 per cent now.

The present system of means-tested care, which this year is expected to see 40,000 people having to sell their homes, is inequitable, demeaning for people who have always been financially independent and discourages savings, the report says.

Longer-term options include creating a new pay-as-you-go, social insurance, which would be expensive; building a funded social insurance which would take 30 years to mature; opting for partial cover - running collective insurance for care costs but not "hotel" costs of long-term care; or developing private/public partnership schemes.

The last of these is being actively considered by ministers, who have promised a White Paper on funding long-term care. Where individuals cover themselves through insurance for a fixed sum of care, the state would add that to the pounds 16,000 of assets which individuals are able to keep when they fall back on means-tested care.

Peris could help with that, according to the author of the report, Ed Richards, a consultant with London Economics, and former adviser to Gordon Brown, the shadow Chancellor.

Today, about 40 per cent of those who retire own their own homes, a figure likely to reach 65 per cent in 20 years time.

Creating Peris - something the financial services industry is unlikely to do without government assistance - could take advantage of that, reducing public spending but without forcing individuals to sell their homes during their lifetime.

"At the moment, it is an all-or-nothing situation," Mr Richards said. Individuals either had to invest in private long-term care insurance during their working life, which was incredibly expensive, or take the risk of almost all their assets being means-tested away. Creating Peris would provide something in between - allowing many individuals to preserve at least some of their assets for inheritance while protecting themselves, either completely or partially, from falling back on to means-tested care.

t Paying for Long-Term Care; IPPR, 30-32 Southampton St, London WC2E 7RA; pounds 9.95.

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