The cost of old age

By Ros Altmann, June 16, 2011
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Fantastic news. More than 10 million people in Britain today will reach their 100th birthday.

Tremendous advances in healthcare and lifestyles have produced dramatic changes in longevity in the past few decades, which is cause for celebration.

However, the financial implications of living longer have still not been adequately factored into our personal financial planning, which could leave too many of us struggling in our later years.

While life expectancy has been soaring, savings rates, investment returns and annuity rates have fallen sharply, meaning lower pensions all round. One in four people will need long-term care costing tens of thousands of pounds, but no money is being set aside for this at all.

New thinking is needed to prepare for a fullfilling older age.

First, rethinking retirement. Longer working lives are inevitable and offer great benefits. As life expectancy keeps rising, there is actually a whole new phase of life ahead of us: 'Bonus Years' of part-time work, instead of suddenly retiring with inadequate incomes at an arbitrary age.

Many people are not 'old' in their sixties nowadays so why are we wasting their valuable skills? With decades of healthy life to come, rethinking retirement will alleviate the pensions crisis and many of us would welcome the chance to keep working, particularly part-time, earning more money to sustain our lifestyles.

But we also need new thinking and planning for care costs. As more of us live longer, many more people will need long-term care. No money has been put aside for this. Our Welfare State was designed in the 1940s, when the idea of millions of people living so long and needing care was almost unthinkable.

Under the current means-tested system the State only covers medical - not long-term care - expenses. Anyone with assets exceeding £23,250, including their house, has to fund all their care costs.

It is almost impossible to insure against this open-ended liability but we urgently need to find fairer ways to fund care going forward to avert another crisis.

The Government's Commission on Care Funding will report In a couple of week's time, perhaps recommending that individuals only have to pay up to a cap of around £50,000 and that the State pays the rest. This should help people plan properly and avert a funding catastrophe.

So, living longer is great news, but financial plans must adapt to new realities. Then we can all truly celebrate the idea that so many of us will live to be 100 - or even 120!

Ros Altmann is the director general of Saga and a former government pensions adviser

    Last updated: 11:35am, June 16 2011