Page last updated at 12:15 GMT, Tuesday, 14 July 2009 13:15 UK

Options to pay for long-term care

By Kevin Peachey
Personal finance reporter, BBC News

Care home worker
Older people in England could be asked to take out insurance

The advance of medical science and healthy living means people in the UK are living for longer.

But as more and more older people have the opportunity to enjoy their retirement for longer, their longevity is bringing some financial pressures on us all. This includes the need to pay for long-term care of the elderly.

At present in England, anyone with a home or savings of £23,500 or more is not given state funding for a care home or help from social services.

Many pensioners, as a result, are forced to sell their homes or use their savings to fund this care - a situation which has led to the government outlining a blueprint to deal with these financial pressures.

Insurance plan

One option being suggested for discussion by the government is an insurance-based scheme which would allow people to protect their homes and savings.

Public reaction: "What would you expect to get back"

Similar options are already available in the commercial sector and experts suggest that the UK "at-retirement" market for financial products is expected to soar.

Ian Owen is chairman of Partnership, a provider of financial products for people with health conditions.

He told the BBC's Today programme that the principle of compulsory insurance was "missing the point".

He said that there was a "black hole" in funding for long-term care, but that this was the result of a lack of sufficient provision for retirement in general.

Two brands of cover were already available for people looking for insurance to pay for care home charges.

They were pre-funded long-term care insurance, which you pay for with premiums during your working life, in case you require care during retirement.

Mr Owen said this option failed to cover the cost of "healthy old age" and so he suggested a second option of an "immediate needs annuity".

Under the Partnership policy, for a minimum up-front payment of £5,000, a regular, tax-free income is paid to the registered care provider, starting immediately and continuing for the rest of the policyholder's life.

However, the average amount paid up-front is £80,000, a charge that most people pay for by selling their home. If they die within six months of taking up the policy, then some of that premium is paid back to their family.

Growing market

Clearly, saving for the cost of retirement does not need to come through a specific plan. General savings products are available, and one actuarial firm says that interest in these is likely to boom in the coming years.

Road sign for elderly pedestrian
Options are available through the commercial sector

Watson Wyatt predicts that the UK "at retirement" market for financial products will grow from £14.1bn at the end of 2008 to £23.1bn in five years time. These are the types of financial products that turn investments into income when the saver reaches retirement.

"This growth will be driven by the increasing number of people coming up to retirement in the next five to 10 years and offers considerable opportunities for product providers and financial advisers alike," says Andy Sanders, senior consultant at Watson Wyatt.

Alternative to pensions savings are investments in property, cash deposits, life investment bonds, and Individual Savings Accounts (Isas).

Mr Sanders said that the prospect of longer retirements meant people were looking at different ways to maximise their retirement income.

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