Fewer than one in five workers have factored in potential care costs into their retirement planning according to new research from Barnett Waddingham.
The consultant says this is a major reason why there is a significant gap between people’s expectations for retirement and the financial realities they face.
The report — The At-Retirement Reckoning — found that over a third (36 per cent) of the 5,000 people surveyed expect health and care costs to increase in the first decade of retirement, but almost half (47 per cent) reckon costs will remain unchanged.
This perception of stability persists well into retirement, with 38 per cent expecting costs will ‘stay the same’ in their second decade of retirement, and 33 per cent into the third.
The research found that for those closest to retirement (aged 55 to 64) these expectations are more pronounced, with over half (51 per cent) expecting health and care costs to remain stable in the first decade, and significant proportions – 38 per cent and 30 per cent – carry this belief into the second and third decades, respectively.
The findings raise concern that many workers could be significantly unprepared for, or unaware of the financial realities of retirement, particularly as care needs and costs often increase over time.
While 43 per cent respondents said they had thought about the possibility of getting a serious illness, they have not considered it fully into their retirement plan. A further 19 per cent have considered it in their plan, while 28 per cent have not considered it at all.
Looking specifically at care, just 17 per cent of workers have considered fully going into care into their retirement plan. Meanwhile, 40 per cent have thought about it, but not considered it fully, and 31 per cent have not considered it at all.
Barnett Waddingham says that without greater awareness and planning, millions of workers could face unexpected challenges in meeting future expenses. While there are many variables to take into account – type of care, location, and life expectancy – carehome.co.uk figures estimate that care costs can vary from £1,160 per week for residential care, to £1,410 for nursing care on average. Annually, this could equate to £60,320 per year for residential care, or £73,320 for nursing home care.
This is significantly lower than what most workers anticipate receiving from their workplace pensions. The average expectation is an income od£20,435 per year, although, this varies depending on age.
Those aged 18-24, and 25-34 expect to receive £24,900 and £23,900 respectively. However, those closer to retirement aged 45-54, and 55-64 expect to n income of £19,400 and £17,750 respectively.
Barnett Waddingham partner and head of DC Mark Futcher says: “There’s no doubt about it, the UK’s care crisis is deeper than we thought.
“As of now, Age UK estimates there are 2.6 million people aged 50+ in England unable to even access care; including hundreds of thousands stuck on waiting lists, or waiting for their needs to be assessed. Now, our data suggests that millions more are unlikely to even be able to afford it when they reach retirement.
“While there are numerous factors to take into account, what’s evident is that very few people are even thinking about their health or care considerations when planning for their retirement. As a result, we’re at risk of a growing population with woefully inadequate pension savings that could buckle under pressure at even the slightest sign of illness in retirement.
“While education, awareness and financial guidance will play an important part in fixing this problem; time and time again, the inadequacy of auto-enrolment workplace pension contributions is the main problem that must be resolved.
“With details of the Government’s highly-anticipated pensions review still to come, there’s an urgent need to fix our pension system to ensure better outcomes for retirees, whether they need care or not.”