ProtectionAug 11 2014

LTC fees shaping the market

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As well as measures that aim to increase the quality and transparency in the care system, the act also introduces greater clarity around paying for care, which should help grow the market for long term care products and advice, Sam Barrett said in this month’s protection spotlight.

A deferred payment scheme – to be introduced in 2015 – will ensure that no one needs to sell their property during their lifetime. As an alternative, the local authority will put a charge on the property to cover care fees and interest, with these recouped at death.

People going into care will be aided by the capping of care costs. Included is an increase in the means-tested thresholds from April 2016, taking the upper limit from £23, 250 (£24, 000 in Wales and £26, 000 in Scotland) to £118, 000. As a result, more people with modest assets will get a contribution towards their care fees.

Everyone – regardless of assets – will benefit from the £72, 000 cap on care costs as of April 2016. However, the cap only applies to care costs up to the local authority rate, and people in care will still be responsible for their living expenses, which are capped at £12, 000.

Ms Barrett said, “While the reforms are likely to be of benefit to only a small number of people requiring care, they may result in important change in other ways. Within the Care Act there is a requirement on local authorities to ‘establish and maintain service for providing people in its area with information and advice relating to care and support’ including ‘how to access independent financial advice on matters relevant to the meeting of needs for care and support’.”

There are a number of ways for anyone entering care to arrange their finances to help cover the costs, such as creating a portfolio of savings and investments to generate sufficient income to cover future costs, and immediate needs annuities can be used to ensure that, however long they live, care costs are covered.

Prospects for pre-funded products, like the investment-bond linked products that were marketed in the 1990s, could be on the horizon. Changes in investment performance and regulation mean such a product is unlikely now but there are hopes that something more suitable will emerge, particularly as changes in pension planning further open opportunity to pre-funded products.

“Keeping public awareness high is essential. While the Care Act is likely to result in a boost to the immediate needs market as more people are directed towards independent financial advice, the creation of a pre-funded market will be a longer term development, requiring support from government to change people’s attitudes to their care requirements,” Ms Barrett said.