It is the one life event we don’t want to talk about. Shakespeare could only talk of it through the fool;
Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything
We can face death, but we cannot face the second childhood where we resume physical and/or mental dependence on others.
A political risk
This is why it is both risky and brave of the Conservative party to put the funding of extreme old age as a core policy in its manifesto.
Previous iterations of Government, Conservative, Labour and Coalition have used the cap on elderly care recommended by Andrew Dilnot to spare us the need to engage. We knew that no more than £72,000 of our wealth would disappear to residential nursing homes or local authorities to look after our parents. Now this certainty has been replaced by the catastrophe of all but £100,000 of our inheritance being at risk.
I use the word “our” loosely, there is an entitlement culture among my generation (the baby-boomers) that the nice houses our parents haven’t downsized from will cascade to us (as John Major promised). That the house might come to us heavily mortgaged to our parent’s carers was not in the script.
The Institute for Fiscal Studies said the inclusion of the family home in the means testing of home-based care for the first time would hit between a quarter and a third of 70 to 79-year-olds who had assets of more than £100,000 when housing was included.
Short term consequences
Already we are hearing squeals of pain from Conservative canvassers , whose lap of honour is being interrupted by “their own” – distraught that either their house, or the house they considered theirs, is subject to charges they had not considered.
Which is of course the rub. Dilnot’s cap simply kicked the problem of funding healthcare into the long-grass, where it would have stayed had not Nick Timothy decided to drag it into the electoral limelight.
It is the least likely of political actions, one that was – I am told – resisted even by John Godfrey (well known to this blog) and certainly not one discussed by the Cabinet.
But it is hugely significant and could yet rival Brexit as the cause celebre of this election.
My house and my pension
For many people of my age, social insurance is inextricably bound up with housing wealth, not only do we consider our property a safeguard against future impecunity (downsizing) but we secretly consider our parents’ houses a second line of defence.
We laugh in the face of inheritance tax, not just because it is avoidable but because Governments tell us that it is tax that will wither on the vine. Financial advisers have all kind of ruses to ensure this, but they cannot avoid the harsh realities of care.
Ros Altman’s main argument for her cashing out her occupational defined benefit plans has been to provide the capital to protect her and her family from the consequences of her healthcare. This strategy will now seem more credible to those of my generation.
But if we start considering our pension as a capital reservoir , we neglect the capacity of a pension to pay the long-term care bills. Infact indexed pensions are a proper hedge on the long-tail risk of extreme old age. What is more, under current rules, 50% of the pension can be assigned to your partner, something which cannot be done with the liquid capital in drawdown or a property.
A proper pension – the best healthcare hedge.
We have yet to see the detail – I suspect as yet there is no detail. There may never be detail if the Conservative canvassers can convince their MPs that the Prime Minister cannot be serious.
But I get the impression that Theresa May is extremely serious and that she does not go back on things she says.
So – assuming that this reality check does not hand the election to Labour (unlikely), expect to see swift delivery of these proposals well before the 2020 deadline (which incidentally is when the Cameron/Dilnot cap was meant to arrive).
Our house is our health-plan, unless we have a plan B. Pension Freedoms may be no more than self-insurance (the Altmann plan). But a lifetime income, indexed against inflation, remains the best bet for most of us, to meet our long-term financial needs.
I hope that this lesson is learned by the policy makers and we return to a simpler purpose for retirement savings – a proper pension.
But when I came to man’s estate,
-with a heh hoh the wind and the rain
Gainst mine inheritance men shut their gate-
for the rain it raineth every day
another foolish song from the bard.