Old age care will cost us one way or another

All this is going to cost a huge amount of money, as much as pounds 1bn extra a year, or 0.5p on income ta

ld age is unfashionable and seems so far off for many of us that it's hard to be interested in the problem of who should pay to care for the elderly. Old age often seems like another lifetime away. Even among older people, sales of long-term-care insurance policies have never taken off. We are living much longer, but have failed to adjust our finances to take account of those expensive extra years.

Successive governments have also dithered over the problem. A Royal Commission has been investigating the costs of long-term care, and it will report tomorrow. Its findings have already been extensively leaked, but the official report should ignite a better debate on how we want to pay for our biological success. The choice is between state payment for the care of our elderly people; or insurance and pay-as-you-go for those who can afford it, plus a state safety net for those who can't.

The Royal Commission is expected to recommend that the state should pay for long-term nursing care for everyone who needs it. This is separated from the costs of accommodation, food and non-nursing help. Anyone with more than pounds 40,000 of assets would be expected to meet their own "B&B" bills in residential and nursing homes.

The report will also call for extra support for families nursing elderly relatives at home. This will clarify what we are and are not entitled to under our free health service.

People often moan that the "cradle to grave" service we have come to expect from the NHS has been eroded. But the NHS is intended to deal with health of the population rather than its social services needs. It's not supposed to pay for non-medical help around the home, such as cleaning or cooking.

All this is going to cost the Government a huge amount of money. Reports have suggested an extra pounds 1bn per year, and that bill will just go on rising if, as expected, the improvements in longevity are maintained at current rates. It might mean an extra 0.5p on the basic rate of income tax. That doesn't seem too much to pay if it sets up a workable system to benefit the elderly now and in the future.

The Government does not have to accept these recommendations, but it does need to do something to help us out financially. We have to accept our own old age is going to cost us money, and probably our houses. There's no way round it: if you expect to retire at 55 or 60 and live for another 40 years you need to arrange a lot of income, but it almost certainly won't be enough. Long-term low interest rates mean a disastrously low retirement income for today's and future pensioners. Currently, pounds 100,000 saved in a pension generates about pounds 4,000 a year annuity income in retirement (rising at 5 per cent a year). The Government's pension reforms have not tackled this issue, so we could all face one big problem when we retire. If they get it wrong on long-term care too, we will all be in serious trouble.

n i.berwick@independent.co.uk