Proposed new care legislation
Following the government's announcement to implement a new funding model for adult social care, the £72,000 cap on care costs has received a great deal of news coverage. While this is certainly a step forward, there's also a risk that the headline figures will create confusion.
Helping clients understand the real cost of care and how to plan for it remains a key, and growing, role for advisers, especially with the reforms introducing more rather than less complexity.
There are three key elements of the new reforms which, if approved by parliament, will be implemented over the next three years. These are:
A £72,000 cap on eligible care costs - this would apply to costs an individual has to pay to meet their eligible care and support needs in England and would be introduced in 2016.
An increase in the means-tested thresholds - under the current rules, help with care costs is only available once assets have fallen below £23,250 but, from April 2016, this will be increased to £118,000.
An interest-bearing universal deferred payment system to ensure that no-one will have to sell their home in their lifetime to pay for residential care will be introduced in April 2015.
What the reforms mean for the cost of care.
While the reforms will provide some financial assistance there remains confusion around how much additional support the state is providing, and many people will still need to make a substantial contribution to their care costs.
1. The Cap on Costs
In particular, there is confusion around the cap on care costs. Many consumers mistakenly believe that once they have spent £72,000 on care, their local authority will foot the bill for any further costs.
The reality is somewhat different as the cap relates only to care costs and not to general living costs (e.g. accommodation, food and other 'hotel' type costs necessary to live in comfort). Removing these costs, which the government is capping at £12,000 a year (in 2016/17 prices), significantly reduces the probability of reaching the cap.
Furthermore the cap only relates to the local authority's rate rather than the full cost of care. As many people in care will find themselves paying in excess of the local authority rate they will still need to budget for considerable care costs.
2. The Means-tested thresholds
There is also the potential for further confusion around the proposed changes to the means-tested thresholds. Although increasing the upper threshold to £118,000 will mean more people receive some state support, the tariff operating between that and the lower threshold (£17,500 in the Department of Health Policy Statement but likely to reduce in line with the earlier introduction of these measures announced in the Budget) will need to be understood when planning for care fees.
The relevant tariffs and the lower threshold have yet to be agreed, but if existing levels were applied, once the value of someone's assets were to fall below £118,000, they would be required to make a contribution of £1 towards their weekly care costs for every £250 of assets they had in excess of the lower threshold. At the top of the scale, this would mean an initial contribution of more than £400 a week.
3. Deferred payment scheme
More clarity is also necessary with the deferred payment scheme proposal. Although this appears to address the concerns of people who don't want to sell their home, for many it could simply mean delaying the sale.
Under the scheme the local authority will put a charge on the property to cover care fees and interest, and it will expect to recoup this on death. The amount that this adds up to will depend on how long the person needs care and what other assets and income they may have to support their bills. For some, this may therefore prove a good way to finance short term needs - however, for others, where the need for care extends beyond the short term, the mounting cost of bills and interest could easily reach a point where there is no equity left. Using the house as collateral does not, in itself, limit the total liability.
Consequently, while this will be a suitable option for some families, for many, other solutions regarding the family home are likely to be more appropriate.
The importance of financial advice
If there is one conclusion to be reached, it is that the complexities surrounding the funding of long term care mean that financial advice is essential to enable consumers to understand and plan for the costs involved.
Unfortunately, research shows that only 15% of self-funders in residential care have received appropriately qualified care fees advice*. A consequence of this low take-up is that one in four self-funders depletes their assets prematurely and falls back on the state. This can reduce the choices they or their families are then able to make over the care they receive from that point.
Although the reforms will mean more people benefit financially, long term care will still be a significant cost for clients. To ensure they are able to meet these costs, careful planning and professional financial advice are essential.
*Research commissioned by Partnership, showed that in 2009, out of the 53,000 self-funders who went into residential care, only 7,000 received appropriately qualified financial advice.