Government confuses care funding issues

The Care Act 2014 should have ensured better provision of, and access to, care for more people across the UK, given the acknowledgement of the 2011 Dilnot Commission report that local authorities could not continue to provide ‘free’ or even subsidised care in the future.

But while the Care Act made it clear there was a need for advice, stating local authorities should point individuals towards qualified financial advisers, such as those belonging to the Society of Later Life Advisers (Solla), it did not go far enough, according to some experts.

Not only has the £72,000 cap been delayed until 2020, but also many associated costs have apparently been missed when the government carried out the initial calculations to reach the £72,000 limit.

Indeed, according to a report in sister newspaper Financial Adviser last year, some people may end up spending £177,500 before the cap kicks in.

Source of funding for the care market 2014/2015

In a document for advisers from Partnership, called ‘Getting Started In Care, the breakdown of how people in 2014 to 2015 paid for care shows a significant proportion - 41 per cent - are self-funders.

Of the rest, 37 per cent are council-funded, while the rest are either receiving council subsidised care or the National Health Service is paying for all of it. In 2014 to 2015, the NHS funded just 10 per cent of care.

While the government does not commit to increasing long-term care funding for either the NHS or local authorities, and it seems to have kicked the care cap into the long grass, it can - and should - encourage people to think about how they will self-fund.

According to Joanna Fowler, head of product for Saga Personal Finance, the government could be doing more to help educate people.

She says the government should commit to improving consumer understanding that social care is means-tested, and not available to those who can afford to pay for themselves, which in England means anyone with more than £23,250 in total assets.

Local authorities have a significant role to play in signposting those who are self-funding care to a suitably qualified and accredited adviser Brian Fisher

Steve Lowe, group communications director for Just Retirement, agrees, and thinks this should be a matter for both the government and the financial services industry.

He says: “Raising awareness of an individual’s responsibilities with regards to care is arguably the most important step.

“Unless a person realises they will - at least in part - need to pay for their own care, it is difficult to imagine anyone setting aside money, even if the government were to incentivise the process.”

Local authorities should also step up to the plate, says Brian Fisher, long-term care manager for Aviva.

He says: “Local authorities tend only to become engaged at the point of need. However, they have a significant role to play in signposting those who are self-funding care to a suitably qualified and accredited adviser.

“Phase one of the Care Act included this requirement but many local authorities have yet to implement this fully, although some have adopted an approach of referring potential care self-funders to members of Solla.”

Regulatory environment

The City regulator has also set up some hurdles which professionals must overcome in order to sell immediate needs annuities.

Initially, such plans, because they were provided by insurance companies, tended to be sold by life and protection specialists.

As protection does not fall under the requirements of the Retail Distribution Review, and therefore protection advisers do not need to have the QCF level four qualification, many life advisers may have mistakenly thought they could continue selling long-term care products.

Not so. As with the Holloway plans from Cirencester Friendly, which carry an investment element and therefore fall within the scope of the RDR, so too do immediate needs annuities.

In June 2012, the then Financial Services Authority (FSA) issued its 16-page finalised guidance (FG12/15): The Retail Distribution Review: Independent and Restricted Advice.

All this will not work unless advisers get to grips with the whole care subject, and the good citizens wake up to the fact the buck clearly stops with them Janet Davies

In section 6.6, the FSA document stated: “Long-term care insurance contracts are retail investment products.

“Advising on long-term care insurance contracts requires a specialist qualification, but not a separate permission.”

Therefore, many advisers who tended to sell a lot of life and protection products would either have to sit a series of examinations in order to be RDR qualified, or give up selling these altogether.

Except the FSA would not allow advisers to simply ignore long-term care products.

It added: “Advisers should not recommend a product that is an alternative to a long-term care insurance contract, where a long-term care insurance contract would be suitable, because they have not passed the relevant examination.”

Therefore, any adviser whose clients may come to need long-term care will have to consider insurance products alongside all alternatives to financing the costs of such care.

But Janet Davies, co-founder of Symponia, says one could play ‘devil’s advocate’ and ask whose responsibility is it really?

She says: “While our product providers could come up with suitable products, and the government could set in stone future legislation, and local authorities could refer every client to a financial adviser, these combined steps will not work unless advisers get to grips with the whole care subject, and the good citizens wake up to the fact the buck clearly stops with them.”