The cost to investor confidence in the wider financial services sector is probably greater than this.

Elderly investors entering care homes are a particularly vulnerable group of individuals. As a result of this FSA fine and the associated press coverage, thousands of elderly people and their families are bound to be asking “who can we trust for care fees advice”?

It would appear that, in the case of HSBC and NHFA, the advisers were being encouraged to sell products rather than deliver holistic advice to their customers.

Investment Bonds were being inappropriately sold by NHFA advisers to elderly people whose life expectancy was shorter than the term of exit penalties attached to the products. This meant that unplanned withdrawals to cover rising or unexpected care costs could only be met by paying hefty charges.

There were other issues identified by the FSA, including a lack of consideration of the tax situation of the investor, which is critical when making an investment recommendation.

Despite these failings at the care fees advice arm of a major bank, Investment Bonds can form part of a suitable investment recommendation for care fees planning. When used appropriately, Investment Bonds continue to be a useful tax planning tool in certain situations for investors who require income in the form of regular withdrawals.

The combination of understanding attitudes towards investment risk along with personal circumstances, goals and objective is critical to ensuring that Investment Bonds are considered alongside other financial planning options for paying care fees.

In the case of NHFA, the quality of advice appears to have been at fault, rather than the underlying products in the form of Investment Bonds. This unfortunate chapter in the provision of care fees advice highlights the importance of working with a specialist adviser who is wholly independent and not driven by commission targets.

When seeking advice on care fees planning, we believe there are several key things to consider.

You should always meet with your prospective care fees planner and ask them lots of questions to establish their understanding of your objectives as well as their own experience and qualifications. Shop around if necessary to find the right adviser to meet your goals.

Only ever work with a care fees adviser who charges a fee for their professional services. This will help to remove the influence of commission generated by a product sale from the equation.

Using a fee charging adviser should also ensure neutrality across the different product options, so each choice is considered based on what is right for you, rather than what will line the pockets of the adviser or their firm.

Always get their recommendations in writing before you make a decision on the right course of action. Asking your care fees adviser for a comprehensive report will give you the opportunity to reflect on their recommendations and seek a second opinion if you feel this is necessary.

It is important that your care fees adviser includes the options and underwritten pricing for an immediate care annuity within their report. Even if you have dismissed this option as too expensive or inappropriate for your needs, it at least creates a sound starting point for future discussions.

Ask your care fees adviser lots of questions to ensure they fully understand what you are trying to achieve, including an understanding of your attitude towards investment risk. Any care fees adviser who is rushing towards a product solution is unlikely to be acting in your best interests.

Finally, it is important to take the time to understand the impact of charges on any money you are investing. This is particularly important if your circumstances might change. The illustration and key features document provided by your adviser will contain this important information.

No competent care fees adviser will ever object to you asking them lots of questions. In fact, your adviser should be inviting lots of questions so they have the confidence you understand their recommendations.

Do speak to us if you need specialist and independent financial advice on care fees planning.

The figures from Key Retirement Solutions found that one in four of the estimated 345,000 people paying for care in the UK have to resort to state funding each year when they run out of money.

As a result of having to fall back on Local Authority funding, the standard of care being enjoyed when privately funded can dramatically reduce down to a more basic level, with personal choice of care provider or home removed.

An important part of our care fees planning service for clients is helping them to understand what is affordable and whether they will run out of money in the future. It is always far better to be aware of this at outset, rather than discover you have run out of cash once a high standard of private care, in your own home or at a residential home, has been established.

Part of the solution for those requiring care can involve the purchase of an immediate care annuity, to secure part or the entire income shortfall for life. The cost of these products will vary depending on age, health and income shortfall and is established following an underwriting process we help you complete.

Immediate care annuities can often be combined with a cash savings or investment strategy to complete a well rounded plan, not only for care fees funding but for managing wealth and inheritance in later life.

The latest Real Retirement Report from Aviva found that whilst most people are worried, concerned or terrified about meeting care costs, very few have made any formal provision.

Of those over-55s who believe they should have to pay for care in retirement, they say that an average of £3,610 is a fair cost for a lifetime of care.

Looking at suggested funding strategies for care in later life, the Real Retirement Report found the most popular option was for the “better off” to contribute to their own cost of care, with the Government paying for everyone else. 51% of respondents felt this was the best option.

Meeting the cost of long term care continues to be a very difficult subject, despite the government initiated review by Andrew Dilnot concluding that social care costs in England should be capped at £35,000.

Under the current rules, those with assets over £23,250 are expected to fully fund the cost of care.

The Local Authority only picks up the tab when assets, including the value of property in some cases, falls below this threshold.

The independent Dilnot report argued for this threshold to rise from £23,250 to £100,000. Doing this would result in fewer people having to fund their own care fees.

Despite these proposals, planning for the cost of care remains a challenging and specialist advice area.

Those needing care should spend some time talking to a suitably qualified and experienced independent financial adviser to ensure they understand the various issues and their options for meeting these costs.

Photo credit: Flickr/Borya

For some time it has been common knowledge that the government needs to implement changes to the current system which has for years failed the elderly population.

The report recommends that significant changes are needed to create a social care system which is ‘fit for purpose’ as the ageing population and their related needs increase.

The government is urged to act promptly in the light of the much needed changes outlined in the report.

The Dilnot report recommends raising the threshold for means testing and introducing a cap on an individual’s liability.

It recognises the need for both private and public partnership when looking at future care and the way it is to be funded.

Specialist independent advice will be invaluable for those needing to fund their care.

It will be important that consumers can access high quality information and trustworthy advice.

Consumers will need to ensure that their Financial Planner has the qualifications and depth of experience to provide advice in this complex arena.

In the last twelve months, the number of individuals denied local authority funding has risen by about 80,000.

Recent reports show that over 21,000 pensioners were forced to sell their homes to fund their care fees between April 2009 and March 2010.

The Care Quality Commission has also reported that the number of hospital beds in geriatric wards has also fallen by about 15% in the last five years and that the standard of health and social care is sadly lacking despite the increase in the elderly population.

Pensioners who have worked hard all their lives and who are funding their own care fees are now subsidising those who are being funded by the local authority.

This is a particular problem in the South of England where privately funded residents are paying in the region of £775 per week and local authorities will pay between £268 and £594 per week, dependant on the care they require.

This means that those funding their own care could in effect pay £10,000 a year more than those funded by the local authority. There are concerns that because of the lack of public funding this disparity will continue to grow.

Southern Cross Healthcare, one of the major care providers, is in talks with the government as it faces financial difficulties as local authorities are cutting back and councils are refusing to pay fair and economic rates.

Care homes are calling for the Care Quality Commission, the industry regulator to intervene.

Funding the cost of long term care in older age is often one of the most important financial decisions people have to make. It it important to seek expert and impartial advice to ensure you consider all of the options for care fees planning, including the use of care fees annuities and properly managed investment portfolios.

You can find out more about our expertise in the specialist area of care fees planning on our micro-site at www.mycarefeesadviser.co.uk.

Do let me know if you have any questions on this important subject. You can find out more about me and the services I offer at www.sandy-lowth.co.uk.

Another states that “baby boomer wealth must fund their old age care”.

Lord Warner, who is a member of a commission drafting plans to reform provision for the elderly and disabled, believes that the post war baby boomer generation should fund their care by using the wealth they have accumulated in their properties.

The Health Secretary has already concluded that there is no simple answer to this problem.

Tax payers and family members will almost certainly have to share the burden into the future as the ageing population increases.

Lord Warner admits that there should always be a safety net of state funding for the poorest pensioners but that insurance companies need to look at developing more creative products to address this issue.

Equity release schemes are still unpopular solutions and Lord Warner has urged the financial services industry to find ways of planning for the future and allowing people to protect their assets and at the same time provide funds for long term care.

Nick Starling from the Association of British Insurers (ABI) believes that a partnership system would be beneficial, where the government pays a sum of money towards care costs and individuals plan ahead for the future contribution that they will be expected to make.

A final comment from Lord Warner; “any fantasy about one hundred per cent universal state provision…forget it”.

Do speak to us if you are concerned about planning for the cost of care fees in later life.

The letter to Health Secretary Andrew Lansley warns that the Commission on the Funding of Care and Support, set up in July, has lost momentum. There is a danger that changes may not be put in place during this parliament.

In response to the letter, the Department of Health has said that the reforms remain a priority. They expect the Commission to report before next July.

Previous governments have failed to take decisive action on the funding for long-term care in England, despite numerous commissions, green papers and manifesto promises.

Long-term care and the associated funding remains a major challenge for UK society. The current system is needs and means tested, with those who have assets exceeding £23,250 having to pay their own costs.

You can download our free guide to care fees planning here. This free guide was written to explain long term care, how funding for the cost of care fees can be arranged and what that funding might cost.

Research figures show that:

-30% of adult children expect to rely on help from their retired parents.

-18% of parents set to retire anticipate that their adult children will need financial help in the future.

A house deposit is often quoted as the most obvious reason an adult child would need financial help. Grandchildren are another popular excuse for requiring help with finances.

For parents approaching retirement this reliance on ongoing handouts is of particular concern and can be an emotive issue.

Many parents worry that further demands for help will limit their retirement prospects. This may result in them having to continue working to support their family.

Retirement seems to be a taboo subject for many families and parents seem loathe to discuss this matter with their offspring. This may explain why large numbers of adult children have little knowledge of financial products and have made little provision for their own retirement.

It is important that you take steps to discuss plans sooner rather than later to avoid confusion and disappointment at a later date.

Huge pressure will be put on the State and those people who are currently in work and indirectly helping to fund for care.

The dramatic increase in life expectancy is turning some areas into virtual retirement communities. This will create a burden for the future working population as more and more people will start to rely on State funding.

In 2010, Christchurch in Dorset has been identified as the UK council with the oldest population. Three people are retired here for every five in work.

It is important that people take professional independent financial advice to consider the possible impact of care costs in the future and to make adequate provision for themselves if possible.

The impact of the ageing population on some areas in the UK will be extreme. It will mean that either direct taxation and council tax will have to increase or alternatively services to the elderly will have to reduce.

The proposals from the Government’s Long Term Care Funding Commission are urgently needed.

You may question the need to review your investment portfolio on a regular basis, particularly when you understand that a review fee will be charged for this service.

Needs and circumstances will change over time and it is vital that your financial planning is reviewed in line with these developments.

Changes such as marriage, birth of a child, divorce, change of employment, moving home, death of a close relative or retirement can all have an impact on existing and future plans.

Alongside these developments, your attitude towards investment risk may also change and will need to be updated.

External changes can also impact decisions that have been made in the past. Important developments can take place in the fiscal, investment and economic environment which need to be considered and discussed at a review meeting.

Review meetings on an advisory basis should probably take place at least once a year but this will depend on the your needs and wishes and the complexity and size of the investment.

If the adviser is providing discretionary portfolio management then reviews and valuations should be provided on a more frequent basis.

The challenge for the adviser is to keep the process fresh and interesting as they meet with the client every year.

The adviser must take time to listen, to discuss the events that have taken place since the last review, and ensure they do not miss important information that could impact your existing and future financial planning.