However, creating an equitable standardised care system which is likely to have at least some impact on many of the 53m people across the length and breadth of England is a challenge that even the very brave may politely turn down.
The government stepped up to this challenge by passing the Care Act in 2014, but having launched the first tranche of legislation, the second tranche – due in April 2016 – has been delayed. What does this mean in practice?
When the first part of the Care Act was introduced in April 2015 it travelled under the radar, as many were focused on pension freedoms, but it brought some fundamental changes. Arguably, the biggest of these was the decision to standardise the level at which people qualify to receive care.
So a person will need to be judged to have severe or critical needs when assessed by their local council using the ‘activities of daily living’ criteria before local authority funding may be available.
There has been a suggestion that the council has discretion to help those who do not meet these criteria, but this is likely to be decided on a case-by-case basis, so cannot be relied on.
Once this has been assessed, depending on the person’s assets (above or below £23,250) they would be expected to pay for all or a proportion of their care until they hit the lower limit (£14,250), when they would receive full state funding.
Under these new rules, local councils were also ordered to offer deferred payment agreements – billed by tabloids as ‘government equity release’ – which allowed people to use the value in their home to pay for care without having to sell the property. They were also instructed to signpost people to ‘information and advice’ on how to access care, including how to fund it.
The second tranche of the Care Act was due to be implemented in April 2016 – but has now been put back to 2020 – and would have brought in the care cap and the new asset levels.
This would mean that qualifying people with assets below £118,000 could expect some local authority support, with the cap being positioned as ensuring that people would never have to spend more than £72,000 on the cost of social care during their lifetime.
Once the fine print was reviewed it was found that not all costs were included in this calculationHowever, once the fine print was reviewed it was found that not all costs were included in this calculation, and someone in England could conceivably spend £177,500 before hitting the cap.
That said, this was still a cause for great concern for local government, as they were liable not only for the cost of implementing these changes but also in certain cases for the costs of a person’s care.
This was a huge worry at a time when a £3.7bn year-on-year reduction in their budgets had been applied and the 5 per cent cut from the 2015/16 budget would likely equate to a further £500m reduction.
Objections were raised, and the implementation of the second tranche of the Care Act was delayed until 2020, with some suggestion that it may have been quietly scrapped or at least set aside until it can be fully reviewed and potentially reformed. So what does this mean for the industry, advisers and clients?
Unless a person depletes his assets to £14,250, he will generally need to pay for care, which costs on average £28,600 a year. While the types of assets that are considered are ringfenced – that is, his home is not considered if his partner or a dependent child is in residence – they are relatively wide-ranging.
Indeed, while the pension freedoms arguably moved the goalposts to a completely different playing field in the retirement arena, there is a potential knock-on effect for care. Taking out a regular income product means that the income may be viewed as the asset – that is, £1,000 a year – but if a fund is uncrystallised or in drawdown, it could conceivably be seen as an asset in itself – that is, a £30,000 pot.
Deliberate deprivation – that is, spending one’s assets to avoid paying for care – may need to be another consideration.
If someone blows his pension on numerous overseas holidays immediately before going into care, could this be considered deliberately depriving the council of funds? There are likely to be a variety of questions asked about some of the legislation, which is open to interpretation.
Currently, care annuities which turn a lump sum into a regular payment are the only products which have been specifically designed to pay for these costs. Looking to the future, ‘multi-use’ retirement products which include the ability to use some or all of the fund to meet care costs are entirely possible.
That said, with the average pension pot used to purchase a drawdown being £69,900, there may be little room for manoeuvre if a person has already paid for 20-plus years of retirement.
Relaunching previously withdrawn pre-funded products which allow people to pay into a policy over their lifetime to use if they need care is occasionally discussed. Sadly, while most people realise they will eventually retire, some choose not to save, so a product which only paid out on an eventuality that most people would prefer not to think about was difficult to engage with.
For many people, property is their largest asset, and while some are happy to sell up in order to fund care, others are less willing. Therefore, a ‘home income plan’ product which uses housing equity to pay for domiciliary care is also one option to be considered.
The main impetus to developing these products will be consumer demand. So while the understanding of rights and responsibilities around care is currently low, the news that the government is still considering unveiling a public awareness campaign in April 2016 is to be welcomed.
One criticism of the care system is that it is confusing, so helping people and/or their families recognise exactly what they need to do is likely to increase interest in advice and solutions.
As is the fact that local councils are having to help out in this regard.
So while the fact the second tranche of the Care Act has been delayed – potentially forever – is a blow, it has changed less than you might think, and clients need advisers more than ever as they look to secure their, and their families’, futures.
Frances Ross is product manager of Partnership
Key Points
Creating an equitable standardised care system is a challenge many might refuse.
A person will need to be judged to have severe/critical needs before local authority funding may be available.
The main impetus to developing long-term care products will be consumer demand.
