Bob Champion: Why the later life adventure is a personal journey

Bob Champion looks at the Institute of Fiscal Studies' End of Life data set which throws up some interesting stats which advisers can use to drive client conversations...

I often use the quote, ‘I am a name, not a number’ when I see people using average statistics as fact.

The most common one is that 65-year-olds only have to consider the provision of an income for 20 years because they will die, on average, at age 85. This conveniently ignores the fact that close to 10% of 65-year-olds will live to 100.

When looking at later life statistics it is important to look at averages to get a feel for what happens but individuals also have to consider whether they might be in the outlying probability.

For instance, a 30-year-old has about a 10% probability of dying before age 65. A low probability but the consequences don’t bear thinking about if they die, leaving a young family.

Risk management is, therefore, a combination of probability of occurrence and the impact it will have. In my book, for a 65-year-old to assume they will not need income beyond age 85 falls into the same category as the 30-year-old with a family who believes they do not require life assurance.

Recently, the Institute of Fiscal Studies (IFS) produced an overview of the ELSA ‘End of Life’ data. ELSA is the English Longitudinal Study of Ageing. You may have seen various press reports on this data.

The IFS issued a series of briefing notes that led to press stories such as, ‘You will have to wait until you are 63 to receive your inheritance’ and ‘How much are you likely to receive for that inheritance’.

Of course, the figures published were averages. You personally will receive an inheritance at ages other than 63 and the amount you will receive will be different to the ones mentioned in the press. That is not to belittle the work of the IFS. The message to be taken is that inheritances are being received later and that the amounts received are growing.

The care question

So what other messages do I take from the IFS analysis? With the government pushing publication of its care provision green paper back to the autumn, it is interesting that 46% of people had been ill for a period of 12 months or more before death. Some 46% is a high proportion but it is just under 60% for those who died aged 60 to 69. This peak reduces gradually to around 35% in the 90-plus age group.

Also, 80% of individuals were having difficulties with one or more daily activities in the period before their death with the most common being shopping, bathing and preparing hot meals. Care support for these individuals is provided by partners (42%), sons or daughters. Only 9% pay for private care at home which equates to about 7% of the population.

This indicates the large numbers of unpaid carers that exist. We should ask, what is the impact of family care provision on the family finances? With such a high incidence how should it be planned for?

The survey also tracks individuals during their lifetime and then questions those close to the individual following death. I thought that only 58% of those who died were home owner-occupiers was on the low side. But further reading identified that 8% had ceased to be homeowners since they were last surveyed in 2002 and their death. This is more in line with other surveys that indicate that 70% of pensioners are owner-occupiers.

This throws up another point of interest. Why did they sell their home? Was it because of the state of their health or for other reasons?

Some 44% of those who died had a private pension. Nearly 80% of surviving spouses received an ongoing income. About 10% received a lump sum but 13% received nothing. This seems to mean that surviving spouses are often better provided for than some publicity could lead us to believe.

Funeral costs

The final point I want to draw out is on funeral costs. Between 2002 and 2012 the numbers that died with a funeral plan reduced markedly from 31% in 2002-03 to 22% in 2010-12. The numbers paying out-of-pocket funeral expenses of more than £5,000 increased from 2% in 2002-03 to 18% in 2010-12, with 40% paying between £3,000 and £5,000.

I need to make clear that this data extract finishes in 2012. It will be interesting to see the impact of pension freedoms which were introduced in 2015 on the data in the next survey which will begin to be analysed in 2022.

The value of this data is that it is extracted from a reliable source. Supporting evidence can be extracted as to why clients need to make wills and why they should consider well in advance what they may incur by way of care bills and the needs for powers of attorney; plus there is the need to make provision for surviving spouses and the cost of funerals and whether a funeral plan will be required.

This data and the survey results provide the evidence to support this messaging as you help your clients through their later life adventure.

Bob Champion is chairman of the Later Life Academy