1. WORKPACKAGE 5: LONG-TERM CARE AND PENSIONS ADELINA COMAS-HERRERA, PSSRU, LSE CHRIS CURRY, PENSIONS POLICY INSTITUTE RUTH HANCOCK, UNIVERSITY OF EAST ANGLIA SEAN JAMES, PENSIONS POLICY INSTITUTE DEREK KING, PSSRU, LSE JULIETTE MALLEY, PSSRU, LSE MARCELLO MORCIANO, UEA LINDA PICKARD, PSSRU, LSE ADAM STEVENTON, PENSIONS POLICY INSTITUTE RAPHAEL WITTENBERG, PSSRU, LSE

2. LONG-TERM CARE POLICY CONTEXT Concern over future affordability of long-term care and pensions Concern over future affordability of long-term care and pensions increasing numbers living to late old age increasing numbers living to late old age uncertainty over numbers who will need care uncertainty over numbers who will need care potentially rising expectations potentially rising expectations Debate about the appropriate balance between public and private funding Debate about the appropriate balance between public and private funding

3. LONG-TERM CARE FINANCING SYSTEM Health care free of charge at point of use throughout UK Health care free of charge at point of use throughout UK Nursing care in nursing homes now also free throughout the UK Nursing care in nursing homes now also free throughout the UK Personal care free in Scotland but subject to user charges in rest of the UK Personal care free in Scotland but subject to user charges in rest of the UK Hotel costs in care homes and domestic help subject to charges throughout UK Hotel costs in care homes and domestic help subject to charges throughout UK Disability (cash) benefits are not subject to means test, throughout the UK Disability (cash) benefits are not subject to means test, throughout the UK Govt Green Paper on Care and Support expected to be published early next year

4. PENSIONS POLICY CONTEXT The UK Government legislated for changes to state pensions (in Pensions Act 2007) Earnings-link the level of Basic State Pension (BSP) Earnings-link the level of Basic State Pension (BSP) Make it easier to build up rights to state pensions Make it easier to build up rights to state pensions Remove the earnings-related component of State Second Pension (S2P) by around 2030 Remove the earnings-related component of State Second Pension (S2P) by around 2030 Increase state pension age to 68 by 2046 Increase state pension age to 68 by 2046 Limit the growth in means testing Limit the growth in means testing And it has proposed reforms to private pensions: Auto-enrol most employees into saving for a private pension Auto-enrol most employees into saving for a private pension Compel employers to contribute (if the employee does not opt-out) Compel employers to contribute (if the employee does not opt-out) Introduce a national system of Personal Accounts, to operate alongside existing provision Introduce a national system of Personal Accounts, to operate alongside existing provision

5. METHODOLOGY Use of three linked models: PPI suite of models on pensions PPI suite of models on pensions Caresim, UEA, model of resources of older people and charging for care Caresim, UEA, model of resources of older people and charging for care PSSRU at LSE model of long-term care PSSRU at LSE model of long-term care Innovative combination of macro and microsimulation models

6. PSSRU MODEL The PSSRU model aims to make projections of: Numbers of disabled older people Numbers of disabled older people Long-term care services and disability benefits Long-term care services and disability benefits Long-term care expenditure: public and private Long-term care expenditure: public and private Social care workforce Social care workforce

7. CARESIM MODEL Uses micro data on older people’s income and capital assets (Family Resources Survey) Uses micro data on older people’s income and capital assets (Family Resources Survey) Simulates the means-tests for residential care and for home care Simulates the means-tests for residential care and for home care Uncompleted lengths of stay assigned randomly and contribution to fees calculated for that point Uncompleted lengths of stay assigned randomly and contribution to fees calculated for that point Calculates what each older person in the sample would pay for care should they need it Calculates what each older person in the sample would pay for care should they need it Does NOT predict who or how many will need care Does NOT predict who or how many will need care

8. PPI MODELS Aggregate model projects Aggregate model projects total expenditure on state pensions, contracted-out rebates, total income from private pensions, tax-relief Distributional model analyses Distributional model analyses distribution of pensioner incomes, expenditure on means-tested benefits, revenue from income tax

9. LINKING THE CARESIM AND PSSRU MODELS PSSRU model provides age/gender/marital status/housing tenure weights within type of care for each projection year up to 2032, to act as weights PSSRU model provides age/gender/marital status/housing tenure weights within type of care for each projection year up to 2032, to act as weights CARESIM model provides to PSSRU model CARESIM model provides to PSSRU model projected trend in % of care home residents and home care clients eligible for state support projected trend in % of care home residents and home care clients eligible for state support projected average % of care home and home care fees met by state supported service users projected average % of care home and home care fees met by state supported service users Projected average % of user charges and private payments met using disability benefits Projected average % of user charges and private payments met using disability benefits

10. CENTRAL BASE CASE Official principal population projection, by age, gender and marital status Official principal population projection, by age, gender and marital status Unchanged age-specific disability rates Unchanged age-specific disability rates No change in patterns of formal and informal care No change in patterns of formal and informal care Unit costs rise by 2% per year in real terms (but constant for non-staff, non-capital costs) Unit costs rise by 2% per year in real terms (but constant for non-staff, non-capital costs) No change in financing system from current system in England No change in financing system from current system in England

11. BASE CASE PROJECTIONS: PUBLIC EXPENDITURE AS % GDP

12. PROJECTIONS UNDER DIFFERENT FUNDING SYSTEMS: PUBLIC EXPENDITURE COSTS, ADDITIONAL COSTS ABOVE BASE CASE, £million

15. Relative gains from scenarios, care recipients aged 85+, 2007 (all fixed care costs without fee increases)

16. Relative gains from scenarios, care recipients aged 85+, 2027 (all fixed care costs without fee increases)

17. CONCLUSIONS Public expenditure on long-term care projected to rise from 0.95% of GDP in 2007 to 1.6% of GDP in 2032 under current funding system Public expenditure on long-term care projected to rise from 0.95% of GDP in 2007 to 1.6% of GDP in 2032 under current funding system Various options for reforming the means test could take this to 1.9% of GDP in 2032, while free personal care could raise this to 1.8% of GDP or more Various options for reforming the means test could take this to 1.9% of GDP in 2032, while free personal care could raise this to 1.8% of GDP or more Change to pattern of care in line with Wanless could take this to 2.1% of GDP in 2032, or more under different funding variants Change to pattern of care in line with Wanless could take this to 2.1% of GDP in 2032, or more under different funding variants The benefits of a housing disregard on care go more to those on lower incomes than free personal care (before considering how they would be financed) The benefits of a housing disregard on care go more to those on lower incomes than free personal care (before considering how they would be financed) But all results are preliminary

18. WORKPACKAGE 5: INFORMAL CARE LINDA PICKARD, PSSRU, LSE RAPHAEL WITTENBERG, PSSRU, LSE JULIETTE MALLEY, PSSRU, LSE DEREK KING, PSSRU, LSE ADELINA COMAS-HERRERA, PSSRU, LSE

19. INFORMAL CARE Introduction Demand for long-term care services may change due to policy changes or for other reasons e.g. changes in supply of informal or unpaid care Demand for long-term care services may change due to policy changes or for other reasons e.g. changes in supply of informal or unpaid care PSSRU model makes projections of informal care PSSRU model makes projections of informal care Research reported today Research reported today (1) recent informal care projections (2)new research as part of MAP2030 Research is about informal care for older people provided by adult children Research is about informal care for older people provided by adult children

20. (1) Recent informal care projections Informal Care for Older People by their Children: Projections of Demand & Supply in England to 2041 (Pickard 2008a) Informal Care for Older People by their Children: Projections of Demand & Supply in England to 2041 (Pickard 2008a) ‘Informal care’ is unpaid care provided to a relative, friend of neighbour in need of help due to illness, frailty or disability ‘Informal care’ is unpaid care provided to a relative, friend of neighbour in need of help due to illness, frailty or disability Projected supply of informal care compared to projected demand Projected supply of informal care compared to projected demand Focus on projected supply of intense care provided for 20 or more hours a week and projected demand for social care by disabled older people Focus on projected supply of intense care provided for 20 or more hours a week and projected demand for social care by disabled older people

21. Key assumptions of projections of informal care for older people by adult children GAD principal population projection, by age, gender, marital status (base case) GAD principal population projection, by age, gender, marital status (base case) Demand Demand Unchanged age-specific disability rates Unchanged age-specific disability rates No change in probability of receipt of informal care by disabled older person by key variables including age, gender, marital status No change in probability of receipt of informal care by disabled older person by key variables including age, gender, marital status Supply Supply Marital status projections implicitly take account of changes in potential supply of spouse/partner care Marital status projections implicitly take account of changes in potential supply of spouse/partner care Separate projection of supply of care by children Separate projection of supply of care by children Assumes no change in probability of providing intense informal care to older parent by age, gender, marital status Assumes no change in probability of providing intense informal care to older parent by age, gender, marital status

22. Projections of demand for informal care by older people from adult children and supply of informal care for older parents by adult children, England 2005-2041 (Source: Pickard 2008a)

23. Difference between supply of intense intergenerational care & demand for care by disabled older people, England 2005-2041 (Source: Pickard 2008a)

24. Policy implications To keep pace with demand Either more people will need to provide intense informal care or more formal services will need to be provided Any increase in intense care provision may be associated with lower labour market participation ‘Care gap’ raises questions about sustainability of policies that rely heavily on informal care in future

25. (2) MAP2030 Work Package 5 Research on informal care So far PSSRU work on informal care projections has included a number of aspects of informal care supply PSSRU long-term care finance model takes into account marital status projections Work on informal care supply by children takes into account trends in probability of providing informal care Key objective of PSSRU work on informal care for MAP2030 modelling implications of changes in availability of living children for informal care supply

26. MAP2030 Work Package 5 : Informal Care Introduction Sources of Informal Care: Comparison of ELSA and GHS (Pickard 2008b) Sources of Informal Care: Comparison of ELSA and GHS (Pickard 2008b) Key data source is English Longitudinal Study of Ageing (ELSA) Objective is to use 2002 ELSA data to analyse variations in receipt of informal care by disabled older people, by age, gender, disability, marital status, household type, housing tenure + availability of living children and socio-economic variables Link analysis of informal care to receipt of formal services in PSSRU model

27. MAP2030 Work Package 5 : Informal Care Introduction (continued) PSSRU model uses GHS data to link informal & formal care Comparability in analysis of informal care between the GHS and ELSA is important First stage has been comparison of receipt of informal care by disabled older people in 2002 ELSA and 2001/02 GHS Focus on sources of informal care, in particular receipt of informal care by disabled older people from adult children

28. MAP2030 Work Package 5: Informal Care Initial analysis Differences of definitions of disability and informal care in ELSA and GHS but have been brought together (Pickard 2008b) Similar proportion of disabled older people receive informal care from adult children in 2002 ELSA and 2001/02 GHS Characteristics of disabled older people with care from children similar (bivariate analysis) increases sharply with age is twice as likely for women as men is associated with widowed, divorced or separated older people, either living alone or with others is more likely for tenants than owner-occupiers

29. MAP2030 Work Package 5: Informal Care On-going analysis Currently, multivariate analysis of receipt of informal care by disabled older people from different sources in ELSA using variables not available in the GHS, including availability of living children and socio-economic variables To be followed by linkage to projections of availability of kin and linkage to projections of demand for formal services Contact: L.M.Pickard@lse.ac.uk

30. References Pickard L, Wittenberg R, Comas-Herrera A, Davies B, Darton R (2000) Relying on Informal Care in the New Century? Informal Care for Elderly People in England to 2031. Ageing and Society, 20: 745-772 Pickard L, Wittenberg R, Comas-Herrera A, King D, Malley J (2007) Care by spouses, care by children: Projections of informal care for older people in England to 2031. Social Policy and Society, 6, 3: 353-366 Pickard L (2008a) Informal Care for Older people provided by their Adult Children: Projections of Supply and Demand to 2041 in England. Report to the Strategy Unit (Cabinet Office) and the Department of Health. PSSRU Discussion Paper 2515 (www.pssru.ac.uk/pdf/dp2515.pdf) www.pssru.ac.uk/pdf/dp2515.pdf Pickard L (2008b) Sources of Informal Care: Comparison of ELSA and GHS. PSSRU Discussion Paper 2598 (www.pssru.ac.uk/pdf/dp2598.pdf) www.pssru.ac.uk/pdf/dp2598.pdf Wittenberg R, Pickard L, Malley J, King D, Comas-Herrera A, Darton R (2008) Future demand for Social Care, 2005 to 2041: Projections of Demand for Social Care for Older People in England. Report to the Strategy Unit (Cabinet Office) and the Department of Health. PSSRU Discussion Paper 2514 (www.pssru.ac.uk/pdf/dp2514.pdf) www.pssru.ac.uk/pdf/dp2514.pdf

31. PPI MODEL DEVELOPMENT Refreshing CareSim sample Possible spin-offs – add dynamic capacity to distributional modelling? Housing assets – aggregate and potentially distribution, scenario modelling

32. CARESIM developments Short term: Incorporate more years’ FRS Incorporate more years’ FRS Analyse other scenarios Analyse other scenarios Medium term: 3. Refresh CARESIM sample (first steps) 4. Allow for differential mortality Longer term (beyond/outside MAP2030): 5. Model disability, informal care and carer’s allowance

33. Refreshing the sample + CARESIM enhancements METHOD of simulation Ageing and “de-ageing” FRS sample + Simulation of new events (i.e. pension) + linkage with macro model (PPI and PRSSU). IMPROVEMENTS: analysis extended to people aged 65+ in all the simulated period or extend the period of simulation

34. START Select people aged [45-64] Update CARESIM Sample END Age>=tea ? Retrospective annual reconstruction of: - socio-dem. events; - economic events. Y Age<SPA ? Annual simulation of: - socio-dem. events; - economic events. Y N New Pensioners Pension earnings N Historical Block Historical Block reconstructs retrospectively, the demographic and working path and earnings for sample members with a contributory history in the base year, since their entry in the job market (using only retrospective information available on FRS) Future Block Future Block simulate the socio-economic evolution of the micro-units until they reach the State Pension Age (SPA). Pension Block Pension Block compute pension incomes for eligible sample members. Moving towards a Dynamic Microsimulation Model

35. PSSRU MODEL DEVELOPMENT Include income in the model, such that receipt of services will be a function of income Include income in the model, such that receipt of services will be a function of income Include a wider range of formal care services, such as supported housing, in the model Include a wider range of formal care services, such as supported housing, in the model Incorporate scenarios on mortality, disability, household composition from the other WPs Incorporate scenarios on mortality, disability, household composition from the other WPs Examine a wider range of policy scenarios as discussed at last year’s Advisory Group meeting Examine a wider range of policy scenarios as discussed at last year’s Advisory Group meeting

36. PSSRU MODEL DEVELOPMENT INFORMAL CARE STREAM Include analysis of availability of children, such that receipt of informal and formal care will be a function of availability of children Include analysis of availability of children, such that receipt of informal and formal care will be a function of availability of children Include intensity (hours) of informal care, based on analysis of informal (co-resident) care using 2002 ELSA data Include intensity (hours) of informal care, based on analysis of informal (co-resident) care using 2002 ELSA data Develop a wider range of scenarios around future supply of informal care, especially by adult children, based on longitudinal analysis of first two waves of ELSA Develop a wider range of scenarios around future supply of informal care, especially by adult children, based on longitudinal analysis of first two waves of ELSA

37. PLANNED PAPERS WORKPACKAGE 5 Financing long-term care for older people in the UK: the costs and distributional effects of options for reforming the funding system Financing long-term care for older people in the UK: the costs and distributional effects of options for reforming the funding system An incremental approach to refreshing the sample in CARESIM An incremental approach to refreshing the sample in CARESIM Projections of demand and supply of informal care for older people Projections of demand and supply of informal care for older people Patterns of care under Wanless scenarios Patterns of care under Wanless scenarios Pensions policy options Pensions policy options