Step forward chancellor Philip Hammond, who used his first budget to announce a couple of measures to address the issues.
As well as an additional £2bn for adult social care services in England over the next three years, Mr Hammond also announced that a green paper would be published later this year to set out options for future funding.
Funding boost
The short-term cash injection was well received. “The additional funding is very welcome,” says Patrick Hall, social care fellow at The King’s Fund.
“Councils have seen a reduction in their funding over the last eight years and, while they have adapted to the cuts, it is a struggle to meet the growing demand for care.”
This is supported by research published this April by the Institute for Fiscal Studies. Its report, ‘National standards, local risks’, shows that local authority spending on social care per adult resident fell by 11 per cent in real-terms between 2009-10 and 2015-16, taking it to an average of £381 per adult in 2015-16.
Across England, six out of seven councils had made a cut to the amount they spend per person, with one in 10 reducing it by more than 25 per cent.
While the funding boost was welcomed, the proposed green paper left many bewildered. With four major reports commissioned by the government over the past 20 years, Royal London described the announcement of a further review as ‘prolonging the decades of dithering’.
Previous reviews have included the Royal Commission on long-term care for the elderly, published in 1999; the Wanless review in 2006 and, most recently, the Dilnot Commission in 2011.
While some of the proposals from the Dilnot Commission went ahead, the government announced in 2015 that the £72,000 care cap, which was scheduled to be introduced the following year, would be delayed until 2020.
And while the Department of Health is sticking to the 2020 introduction line, Hall believes the fact it did not get a mention in the Spring Budget means it has been booted into the long grass.
Review wish list
Faced with another blank sheet for this latest review, many would like to see the government taking a much more radical approach to addressing the funding of social care.
Manj Kalar, head of public sector at the Association of Chartered Certified Accountants, explains: “Delays in the transfer of care between the NHS and local authorities contribute significantly to the decreasing efficiency of care. An integrated and whole system approach is needed to develop potential solutions to this issue.”
As well as overhauling the way care journeys are managed and funded, the review also needs to set out clear guidelines on whose responsibility it is to provide and pay for care. For example, according to Hall, around six million people provide care to friends and family members.
While this takes a huge burden off the social care system, he believes that there needs to be some form of incentive to encourage them to do this. Examples of this could include more flexible working arrangements, or some reciprocal support with care from the local authority to ensure the practice does not affect the informal carer’s health.
Whatever the proposals put forward, the protection industry is also calling for more clarity around individuals’ financial responsibilities.
“Insurance should have a role to play in funding future care fees, but without legislation, it is difficult for insurers to look at this issue with any real determination,” says Debbie Kennedy, head of protection at Royal London.
“This uncertainty means that advisers cannot offer their clients solutions for funding future care costs and, with the issue off the agenda, there is a real risk that those in need of care will simply spend their savings.”
Her company recently produced some statistics to highlight the potential care fees that individuals could face. These showed that, depending on where they lived, the bill for the average 30-month stay in a residential care was between £50,000 and £93,000.
Current solutions
With so much still to be determined, financial planning around care fees is very much restricted to helping individuals with immediate care needs. As well as structuring a portfolio of savings and investments to provide an income stream to pay future bills, immediate care annuities are another option.
Also known as care funding plans, these provide a guaranteed income for life, thereby removing the risk that the person lives too long and depletes their savings. Plans are individually underwritten, taking into account factors such as age, health and life expectancy. However, the downside is the market is limited.
Following the merger of Just Retirement and Partnership, there are only two players – Just and Friends Life – actively promoting these plans.
Unfortunately, there is very little available for individuals wishing to take care of future costs. Although a handful of care fee insurance products were marketed 15 years ago, issues matching equity returns to rising care costs meant they were shelved.
Care options
More recently, a few insurers have acknowledged that the cost of care is an issue for many customers, adding care elements to their whole of life plans. For example, Vitality Life offers lifestyle care cover as an option on its whole-of-life plan.
This pays out up to £250,000 if the policyholder is diagnosed with a degenerative illness such as dementia, Alzheimer’s, Parkinson’s or a stroke, which means they are no longer able to live independently. Payments are based on the severity of the condition, with two levels available giving either the full sum insured or a 20 per cent payout.
It costs around 30 per cent of the whole of life premium to add lifestyle care cover and, for an additional monthly premium, customers can protect the death benefit in the event of a claim for care cover.
Deepak Jobanputra, deputy chief executive officer at Vitality Life, says demand has been reasonable for a product that is not mainstream. “People do worry about these types of conditions and how it would affect their independence. If someone needs the money for care it does not make sense to make them wait until death for a payout,” Mr Jobanputra explains.
Another insurer to add care cover to its whole of life insurance is AIG. This pays 75 per cent of the sum assured upon diagnosis of a medical condition that causes severe cognitive impairment or means the policyholder can no longer live independently. The maximum sum insured is £400,000, giving a maximum care cover benefit of £300,000 and, once a claim for care is paid, the policy ends.
Adviser frustration
Even though these two options mean some people will benefit, the fact there is nothing for clients who want to plan for future care costs frustrates Peter Wright, director and adviser at Plan Money.
Four years ago, with the government looking to introduce Dilnot’s recommendations, he joined the Society of Later Life Advisers to be ready for the growth in this market.
“Nothing has changed; it is still like a ghost town,” he says. “I have spoken to insurers and reinsurers and, although there are plenty of ideas and product solutions, they cannot do anything until the government puts a framework in place. When this happens, financial services will be a major part of the solution.”
Developing a set of proposals that ensures care is delivered and funded as efficiently as possible is a must for the government. And, with the protection industry keen to be part of this market, it must ensure it facilitates the creation of insurance products to support those concerned about future care costs.
