Disability Linked annuities could generate £300 million by 2025

by Oscar James on June 2, 2012

New research from The Strategic Society Centre says that up to £300 million of revenue could be generated in the long term care system by a growth in disability linked annuities.
The reports author, James Lloyd, argues that even to maintain what he describes as the current “failing” care system, the government would have to pump in £115 billion each year until 2025 which equates to spending an extra 10% of GDP on care services. The report argues that one option which could help meet the growing cost of LTC could be disability linked annuities, in conjunction with the implementation of the cap suggested in the Dilnot report. At present anyone with assets worth in excess of £23,500 is liable for the full cost of LTC without any entitlement to state support. This has left thousands of individual’s and their loved one’s having to use up life savings as well as selling property in order to meet the cost.

The report recommends that a person wanting to buy a disability linked annuity should have a pension pot of at least £70,000, with £20,000 being set aside for an annuity. Mr Lloyd estimated that around 8% of all annuity purchases could be disability annuities on the assumption that those who bought enhanced annuities did not opt for a DLA. However the report does acknowledge that take up of DLA’s would depend on people’s priorities in retirement and whether they were more worried about other factors such as inflation.

Chris Horlick from annuity provider Partnership said he was skeptical about the need for DLA’s in the short term because of low annuity rates and smaller pension pots. He added that someone looking to buy a disability linked annuity would have to have accumulated a pension pot twice the UK average of £30,000. In this respect DLA’s can hardly been seen as a product for the masses if you need such a large fund in order to buy one. Mr Horlick underlined the urgency for greater funding in the care system arguing that there was a…”….huge cohort of people who need help today.” Charity Age UK earlier this year identified a short fall of £500m in spending from the government, saying that councils had only budgeted for £7.3 billion when they needed to spend £7.8 billion just to keep up with the ‘inadequate’ care standards of 2010. They say that since 2004 care funding has stagnated and then fallen but that the number of people aged over 85 has risen by 250,000. Mr Horlick notes the shortfall in care funding identified by Age UK could even be as high as £4 billion and thus the extra £300 million that could potentially be derived from DLA’s would be not be sufficient enough to bridge the gap.



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