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By Julia Bradshaw | Published Jul 18, 2012

Gov’t pushes for elderly care loans deferred after death

The government’s latest 40-page progress report on funding social care, takes up proposals from last year’s Dilnot Commission report into funding long-term care to create a “pay when you die” scheme.

The progress report says that people who cannot afford care fees without selling their homes will be allowed to defer payment for residential care until after they die, when any costs and interest will be recouped by the local authority on the sale of their homes.

The scheme is already being run in some parts of the country and will become available from all local authorities from April 2015, subject to parliamentary agreement.

However, the difference is that under the new rules local authorities will be able to charge interest to recover their costs, something they are not allowed to do under existing law.

The measure is intended to help people with assets above £23,250 who are forced to meet all of their own care costs, which can reach tens of thousands of pounds a year.

However, industry players have criticised the proposals for being disingenuous because people still end up using housing equity to buy care, but will now pay interest on those loans.

Questions have also been raised as to how this scheme will work. The government has not set out how it will be funded or who will value the properties, but has not outlined how the interest rates will be set. There are also question marks over whether local authorities have the finances or the expertise to make this scheme a success.

Steve Wilkie, director of Responsible Equity Release, said there were still too many “awkward questions” about how the government will pay for its promises, and the proposed deferred loan scheme was “far from a perfect solution”.

Andrea Rozario, director general of The Equity Release Council, said: “We have some serious reservations as to the approach and overall lack of clarity. It suggests that rather than trying to seriously tackle this problem, the government is looking to buy itself time.”

Professor Philip Booth, editorial and programme director for the Institute of Economic Affairs, said the deferred payment scheme had “little merit”, adding the financial services industry was better placed to provide such a service.

The scheme was also criticised by advisers who said it won’t help the increasing numbers of pensioners who retire with mortgage debt or in rental properties.

Russell Hall, IFA for Norwich-based Almary Green, said: “The sting in the tail here is that interest will be charged. The deferred payment scheme provides interest-free loans.”

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