ProtectionJul 28 2015

Pension freedoms blamed for care cap delay

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Pension freedoms blamed for care cap delay

The pension freedoms has been blamed for the four-year delay in implementing the government’s care cap, with one national adviser stating that providers simply have too much on their plates to come up with new innovative products.

The £72,000 cap was due to be implemented by April 2016, but earlier this month it was revealed that the Department of Health would delay this until 2020 following concerns expressed by the Local Government Association and other stakeholders about the timetable and costs involved.

A letter sent by Alistair Burt, MP for community and social care to councillor Izzi Seccombe, chair of the Local Government Association, dated 17 July, stated that the new pension flexibilities have created “a real opportunity for us to work with the financial sector to look at what new products may be developed”.

However, national adviser LEBC Group’s divisional director Kay Ingram told FTAdviser that the at-retirement reforms were exactly the kind of distraction that has stifled innovation on insurance for long-term care.

“The government wants providers to come up with new products, but has given them so many other things to be working on, what with the pension freedoms,” she stated, adding that long-term care is an area that is surprisingly difficult to insure against.

Mr Burt’s letter added that he will be holding an “urgent meeting” with representatives from the insurance industry along with the Treasury and other government ministers to work through how government can help providers bring forward new products.

As previously reported, several providers are working on dual life insurance and long-term care protection products to help boost cover and reinvigorate the market.

Tony Mudd, divisional director for tax and technical support at St. James’s Place, said that those much nearer the point at which care is required should be talking to families about the most efficient way of de-cumulating their assets to pay for care.

Jim Boyd, corporate affairs director at Partnership, explained that any delay to the cap would be a source of uncertainty and anxiety for consumers, although another five years of the same policy conversely gives clarity for advisers working in this area.

“Crucially the government also committed to a publicity drive on care, so we hope this will be the impetus for more advisers to make the investment in getting the qualifications to sell the relevant products.”

Mr Mudd also stated that he did not believe costs were the only driver for the delay, highlighting that estimates of implementing the Care Act have varied widely, although health secretary Jeremy Hunt recently put them at £6bn over the next five years.

The International Longevity Centre-UK recently published a white paper arguing that the state’s strategy for later life funding must secure effective funding for adult social care and find ways of ensuring the provision of mass market financial advice.

It also suggested that the government should incentivise downsizing, supporting innovation in the equity release market, although ILC-UK senior research fellow Ben Franklin added: “There’s a reliance on housing wealth to fund care, but property suffers from price volatility and is very illiquid.”

Mr Mudd added that ultimately, the money to fund care will have to come from somewhere and given that property assets and pensions will, for most people, represent their largest assets, it is likely that these will be raided later in life.

“Again, it is essential that people take advice as to how best they should look to take funds from these vehicles and in what order.”

As for the cap itself, Mr Franklin said the delay suggested the policy had “been kicked into the long grass and the care cap may never see the light of day”, adding that while the plans were not perfect, they would mean more funding for those that needed it, however given the cuts for all departments detailed in the Treasury’s spending review last week, the funding gap is now likely to rise.

Meanwhile, Mr Mudd flagged up that the vast majority of individuals who would benefit from the cap would actually have laid out around £150,000 before reaching the £72,000 cap.

The Institute of Actuaries estimated that only 15 per cent of men and 8 per cent of women would ever reach the cap itself, and even then individuals would still be responsible for accommodation contributions and costs in excess of local authorities’ standard contributions.

Mr Mudd said: “In other words, the starting point must be an understanding of the real costs of care if an individual is to have any hopes of planning for them.”

peter.walker@ft.com