A government cap of £75,000 on long-term care (LTC) costs reported yesterday will benefit 'very few' of the people actually in LTC, according to advisers and industry experts.
The cap is reported to be the result of a deal struck between the Department of Health and the Treasury. It is believed that George Osborne has agreed to foot the £700m bill for the £75,000 cap.
This follows recommendations made by UK economist Andrew Dilnot in a report on long term care issued in July 2011.
Dilnot recommended that the government put a cap of £35k on care - the £75k figure is therefore double Dilnot's recommended amount.
The move was described by as "a step in the right direction" by Society of Later Life Advisers (SOLLA) chairman Tish Hanifan.
Hanifan added: "There has been cross party acceptance that something needs to be done to address the issue of long term care and the £35k originally recommended by Dilnot would have cost the government £2bn.
"This is a pragmatic solution that reflects the economic situation and provides some certainty for the insurance sector.
"The devil will be in the detail in terms of how the cap is implemented however."
Long-term care adviser and director at Care Matters, Brian Tabor, agreed the cap was a positive step, but explained that when the figures are looked at more closely it becomes clear that "very few" people will actually benefit from it.
He explained that on average, care homes in the South-East of England cost £800 a week, about £40,000 a year. The average amount of time spent in care is about four years which amounts to £172,000 over four years.
What the headlines on the cap do not make clear is that it only actually covers the 'care' component of LTC, not board or living expenses. On average the care component of the £172,000 for four years of care is just £54,000, well short of the £75,000 cap figure.
Tabor said: "Unfortunately the majority of people who will benefit from state aid are those with less than £23,250 in savings. But these people already automatically qualify for state help, meaning that the cap's benefits are largely academic.
"What is important is that planning takes place. People must understand how care is costed, and that those costs aren't shrouded in political speak. They should be considering the real numbers and not thinking 'Goody I can now limit the amount I spend to £75k'. That is a lie."
Chris Horlick managing director of long-term care at annuities provider Partnership said of the cap: "Any new money being injected into the care system is welcomed, but advisers and the general public need to understand what these figures mean.
"The £75k can only be set against the average rates set by the local authority - so if care taken is more expensive than average the additional costs will not count towards the £75k limit."
He added: "The cap will make premiums slightly cheaper. People will need to spend 5.3 years in a nursing home to benefit from the cap.
"On average Partnership's clients - all self-funded and so better off than average - spend four years in a home [compared with Bupa's figure of 2.3 years].
"However, 12% of our customers spend eight years or more in LTC. These people will benefit."
Has run Cautious Managed fund since 2011
What’s right – not what sells
Richards fires back at committee report
Available on Investcentre platform
Invested from 2006-2011