The Government’s announcement that it is to launch a public consultation about how long term care for the eldery is to be funded is not before time.

A Royal Commission into care for the elderly, conducted by Sir Stewart Sutherland in 1999, concluded that it should be free of charge, but this was rejected by the Government.

The issue was reviewed again more recently by ex-NatWest banker, Derek Wanless, who identified significant shortfalls in the current system and a lack of care provision in the home, which is where most elderly people prefer to stay for as long as possible.

A system of so-called ‘free’ personal care was introduced in Scotland in 2002, but this has run into difficulties, too. The total cost of nursing care in Scotland in the first four years amounted to £1.8bn and a shortfall in funding of £63m has been identifed for 2005-06 alone.

So what does the latest public consultation need to consider? Firstly, cost and who should pay for it, and secondly, the need for clear definitions of who will be eligible for what.

Currently ‘personal care’ covers a wide range of services provided by local authorites and the independent sector in the provision of care services to elderly people in their homes or in care homes.

It includes cover provided by day centres,  in  sheltered accommodation and ‘home help’ provided to elderly people to assist them with ‘activities of daily living’ such as washing, dressing, feeding and toileting.

In England, personal care services are largely paid for by the end user because it is a means-tested benefit. Free care is only available automatically to people with assets  (including the value of their property), of less than £22,250.

Otherwise, costs have to be paid for by the elderly person or their family, unless the elderly person’s assets are near the threshold or their need for personal care is due to a specific medical condition.

In the latter case, care is defined as ‘nursing care’ and should be provided free-of-charge by the NHS.

But this does not always happen. There have been numerous complaints that access to free personal care has become a post code lottery, with arbitrary and inconsistent decisions being made by different health authorities.

For instance, elderly people with the same condition (such as Alzheimer’s disease) can receive free care under some NHS authorities, but not others, due to different interpretations of the benefit rules.

The other principal problem is funding. A nursing home can cost anything between £300-£1,000 a week, depending on the level of nursing required, geopgraphical area and the standard of the accommodation.

So a £500 week care home would eat up £26,000 of an elderly person’s assets in a year, so that their home might have to sold after 12 months in care.

Few insurers provide immediate needs annuities (Partnership Assurance, Axa PPP and LV=)  and only Partnership Assurance offers a risk-based lump sum saving scheme for long term care.

Could drawdown equity release products be part of the answer?