Stephen Lowe looks at the current raft of long term care reforms
Reform of the social care system has taken another step forward with the announcement by Health Secretary Jeremy Hunt of proposals to cap care costs for the elderly in what he described as a “watershed moment”.
He added: “For too long, the issue has been ducked by successive governments, leading to an unfair system that has people selling their homes and losing nearly everything they’ve worked for to pay for their care.”
The proposals send a strong message that the State will only fully fund those who can least afford it and everyone else will be forced to take some or all of the financial strain, in many cases to the tune of tens of thousands of pounds each year.
As consultations begin, it will be worth following the progress given the potential opportunities that could emerge for financial intermediaries who can help people navigate through the complex financial decisions they are likely to face.
A new system
The reformed system will take effect from April 2017 and applies only to England. The headline figures are that the cost an individual pensioner will pay for social care will be capped at £75,000 and the means-tested threshold will rise from £23,250 to £123,000. Anyone whose assets exceed this will be expected to meet their full costs. Even those with less will have to meet some of the costs on a sliding scale and it is only when assets dip below £17,500 that they will no longer need to pay.
That cap only applies to money spent on the cost of personal social care, such as washing and dressing (not nursing care) which typically make up about one third of all residential care costs. It is subject to prevailing local authority benchmark rates rather than the actual costs. That means individuals will have to meet any costs in excess of the benchmark and also cover their own ‘hotel’ costs of food and accommodation although the Government intends to cap this at £12,000 a year.
An obvious point is that most people will be expected to find significant sums of their own money and only a minority will have the pensions or savings to cover the costs completely.
The £75,000 cap will apply to individuals, so a husband and wife will face paying double, raising the possibility that based on a care home stay of two years, a self-funding couple will face paying £200,000 minimum and in many cases significantly more.
Will people plan?
The hope is that, by establishing the principle of the cap, people will start planning for their future care needs in the same way they do for their pensions in retirement. It opens up the possibility for new financial products to be developed to help people prepare for care costs and protect other assets.
To a large extent that depends on the Government following through on its vision, not just by putting a structure into place but also by hammering home the message that people must take financial responsibility and the earlier they start, the better.
Building new products linked to pensions, housing wealth or insurance is arguably the easy part. Overcoming the public’s inertia is more difficult and probably impossible without a significant campaign designed to build awareness and knowledge.
For this to work, the Government, the financial services providers, professional intermediaries and third sector organisations must work closely together to ensure the message gets through loud and clear.
Lack of information and advice was a key theme in the Dilnot Commission’s report into social care funding which said: “There are examples of good practice but, on the whole, our evidence strongly suggests people are bewildered by the system and do not know where to go or who to talk to for advice.”
In our view, advisers embody good practice and the majority of people facing care costs should seek professional help as a priority. Rather than signposting its existence, local authorities should have a duty to refer people to such advice.
Like pensions, care is a complex financial area where it is easy for people to make costly mistakes. As our population continues to age and the rules become more complex, there is every reason to see demand increasing for professionals who can help families find the most suitable solutions.
Stephen Lowe is group external affairs and customer insight director at Just Retirement
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