Philippa Gee, managing director of Philippa Gee Wealth Management, has digested Dilnot's proposed reforms on care home funding and found a few things which stick in her throat...
Gee gives the Dilnot Commission's report a cautious welcome.
"The crisis in the provision and funding of care has reached a critical point. Overall the report is a winner as it can't get much worse than the present position. The clarity of cost will bring comfort and relief to many", she says.
But as with all reports the devil is in the detail. Gee gives her top ten concerns post-Dilnot.
1. The £35,000 cap is not a 'true' cap
The financial contribution people may need to make could be far greater. Fixed living costs at up to £10,000 will increase the burden on people and destabilise the financial stability of the care homes, making this element of the proposal impossible to uphold.
There is also difference between what self-funders might be paying the care home and what the local authority would be willing to pay. Who will choose which home the person is in? The local authority or the individual and their representatives? Each may have very different agendas.
2. CRAG rules must be reformed
Revise the Charges for Residential Accommodation Guidelines (CRAG) rules governing what is included in the analysis of assets and means testing to include Investment Bonds and it would solve a fundamental flaw in the delivery of bad advice, and the practice of deliberately avoiding paying for care.
From 2007 to 2010, £85bn of new money has been placed in Investment bonds (source: ABI) and it would appear a good proportion has been done to shield money from assessment.
According Mintel, 5% of all adults have an investment bond, mostly with-profits. While not all these individuals are facing the need for care and financial assessment today, it does mean a significant proportion of money is hidden. This has to change.
3. Care home cash crisis
Many organisations are set up by virtue of financing. The minute interest rates rise they may be financially pushed over the edge. One of the first questions clients should ask a care home is about its financial strength.
Using the local authority levels of payments to care homes, rather than the amount paid by self-funders (there can be a huge difference) will put homes under more financial pressure.
4. Inflexible care fees insurance
I expect to see a new market develop once more in care fees insurance products to offer realistically priced cover. While this is long overdue, they need to also flexible, competitively priced, transparent and low in charges.
5. Savings still required
The practical reality is those who have saved money will have options, whether specifically looking at care and want to go to one particular home, or looking at wider issues, such as retirement, school fees or buying a house.
The more clients save, the more options they will have. It is that simple and don't let this report stop them focusing on the goal of financial independence.
6. Accept the house must be sold
Families want to avoid selling the home at all costs. A loan from the local authority at a good rate may be a step forward compared to the well-worn path of Equity Release, but families still have to face the reality that the home will have to be sold at some point and this admirable solution will not prevent that happening.
7. What happens when the cap is reached?
A concern with the introduction of a cap on personal contribution is whether the person will have to subsequently be moved to a cheaper nursing home. It is that sort of disruption that can be particularly harmful to someone in the later stages of life.
8. Equity release risks
My worry is if contributions are capped in this way, people will be incorrectly encouraged to release that proportion of capital through the value of their property.
This may be entirely the wrong mechanism for that person, especially at a time when interest rates will rise. Tread carefully through this difficult issue with clients. Releasing equity may seem a simple solution but it can be costly and inflexible.
9. Too much, too quick?
While I welcome the report I worry about the speed of implementation and hope that the 2013 timeframe can be reached.
10. Force payment from those who can pay
The Dilnot report looks to cap the cost for both the individual and the government. An additional £2bn in outgoings is a drop in the ocean compared to the cost that could be incurred if the situation spirals out of control.
However, with many billions deliberately shielded from being assessed for the payment of care fees, the local authority and NHS are wrongly having to fund people who actually have plenty of resources but have arranged their financial affairs to hide assets from assessment. No one seems to have grasped this fundamental issue.
Philippa Gee is managing director of Philippa Gee Wealth Management and has recently launched carefeeplans.co.uk aimed specifically at providing advice on long term care.
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