The announcement by Jeremy Hunt, the secretary of state for health, that a cap of £75,000 on the cost of care will be introduced in 2017, is very much welcomed and, taken in the round alongside the reforms proposed in the draft Bill, presents another important step in reforming adult social care.
The decision to reform adult social care funding has come about as the current system does not offer much in the way of financial protection for the cost of care and support. Also, because an individual cannot necessarily predict what they, or their family, may need in terms of care in the future, it is impossible for them to know exactly how much money they need to set aside and budget for.
According to the Dilnot Commission, 25 per cent of people may not need to budget for social care, but then equally there will be 10 per cent of people who would need to put away a large chunk of their savings – more than £100,000.
Approximately 40,000 people each year are forced to sell their homes or use up their life savings. Those particularly hard hit financially and who do not have huge assets in terms of property can suffer greatly. According to the department of health, an individual with a house worth £100,000 with indicative lifetime residential care costs of £100,000 would lose around 80 per cent of their assets. Faced with the same care costs, an individual with a house worth £400,000 would only lose 25 per cent of their assets. The fact that some individuals are unprotected when facing devastating financial costs is one of the main cases for change in the current system.
Although the government agrees with the commission’s view that people should contribute to their care costs when they are able to do so, the current system does little to reward those who have saved up throughout their life and planned sensibly for their financial future – the cautious saver can lose almost everything if he is not careful, including his home. This discourages those from saving up and planning ahead financially. With extremely high care costs, having to make contributions towards care fees can become not only a financial, but also an emotional burden, causing unnecessary stress for individuals and their families.
From an adviser’s point of view much of the detail on the government’s announcement on care funding last week was contained in the policy statement issued by the department of health, and the key points are detailed below.
First, there has been a ceiling of spending put in place so no one will pay more than £75,000 for their residential care. This is a cap that previously did not exist and will come into force in 2017. However if the person is receiving care before the age of 18, the cap will be set at zero.
The second major announcement was that the qualifying threshold for means-tested government assistance had been moved from assets, including property, of £23,250 to £123,000 – a far more realistic level. In addition the lower level of the means test has been raised to £17,500 in residential care.
Finally, as set out in the draft Bill, the government will introduce a deferred payment system from 2015 so that “no one will have to sell their home in their lifetime to pay for residential care.” However, in reality, this may not be the best option for everyone and more suitable solutions may be available.
These changes will help with the growing problem of funding elderly care, but the challenge for advisers is to make sure that people were aware of what the cap covers and what it does not. It is also essential that they understand that it will not come into effect until 2017.
The cap on spending has always been suggested to cover only the costs of care. The costs of general living expenses will not be included in the cap of £75,000 – a fact that is often misunderstood. It is therefore vital that people understand that the cap will only apply to the ‘personal social care’ element which is typically one-third of all residential care costs, and will be subject to both eligibility criteria and the prevailing local authority rate. The cap will not cover general living expenses, which will be set at £12,000 a year, or any costs above the rate paid for by the local authority.
A quick look at the amount a person entering care will be liable for before reaching the cap of £75,000 shows that for the 5.3 years it would take to amass £75,000 of care costs, and reach the cap, the average person living with nursing care in the southeast of England could pay approximately £200,000 in total care costs.
In reality a large number of people in elderly care will never reach the £75,000 cap using current longevity predictions.
This quick analysis gives us an idea of how complicated assessing care funding can be and shows the importance of financial advice. The costs are high and will require careful planning if inheritance is to be protected, or clients plan to keep their property.
In response to a question from a backbench MP, Mr Hunt said that under the draft Bill “all local authorities will be obliged to give a care assessment and access to financial advice to everyone in their area” in order to make sure they are given the information they need. If implemented this will at least ensure that people are referred to appropriate, specialist care fees advice.
In short the announcements on social care funding proposals should be welcomed as it at least provides a framework to work from but, as ever, the devil is in the detail and while this will be good news for many, for others the problem of funding their care has not yet gone away. The need for self-funders to receive good financial advice therefore remains as important as ever.
Chris Horlick is managing director of the care division for Partnership
