If the cap fits
With the planned cap on care fees possibly being scrapped, it’s wise to plan ahead.
The way care and support for elderly people is funded is rarely out of the spotlight. The need for the government to find a credible and costed solution grows more acute with each passing year, as demographic pressures put increasing strains on families and local authorities alike.
Most people accept that they should have to contribute something towards the cost of their own care. However, they would agree that there should be a cap on the maximum cost incurred over a lifetime, and that the state should meet future funding beyond the cap. The Conservative government headed into the 2017 general election with a commitment that nursing care in England would be funded by the recipient only until the value of their assets was reduced to £100,000. (At present, only £23,250 is protected.) However, in its election manifesto, the party omitted to mention the possibility of an overall cap on what a person may have to pay before reaching this threshold. Previously the government had been legislating to introduce an upper limit of £72,000 by 2020 on the amount an individual would have to pay in their lifetime for their care. Following a backlash over the so-called ‘dementia tax’, the prime minister was forced to reinstate the legislated cap – a volte-face that perhaps marked a low point of her election campaign.
“The election debate illustrated problems characteristic of England’s social care system,” says Will the cap fit?, a report published earlier this month by Independent Age in collaboration with the Institute and Faculty of Actuaries. “It is complex, often controversial and politicians often promise to reform it. In the end little changes, but demand continues to grow and costs continue to soar.”
The report says that introducing a limit on the amount that an individual has to contribute towards their own care is the right way forward, but that the cap in its current legislated form has limited value, as only one in ten are likely to benefit. This is because nursing costs in excess of the local authority rate (i.e. what the local authority is prepared to pay) are not included in the cap. Likewise, individuals have to pay for ‘hotel costs’ – food, accommodation and heating – out of their own pocket.
“The cap model is unlikely to benefit those with low domiciliary care needs, even if they are chronic and experienced over a long time,” says the joint report. It suggests that the cap should be reframed to include all costs so that individuals know the total amount they are likely to spend on care, even if they become eligible for some state support. The report claims that unless the cap is all-inclusive, taking into account accommodation and daily living costs, individuals will pay more than £150,000 by the time they have been in care for six years.
Now it seems, however, that the government has ruled out plans for introducing a cap after all. It is instead seeking further views on the future direction of care funding in England. This consultation had been due to report at the end of this year, but there are rumours that this may now be delayed until next summer. Meanwhile, Chancellor Philip Hammond is reportedly under pressure in his forthcoming Budget to redress the perceived intergenerational imbalance by removing some tax cuts for the elderly in order to introduce new tax cuts for the young. Some will question whether it is fair to ask younger people to fund the care system through their taxes when many older people live in valuable houses. Therefore, a windfall tax levied on the increase in property prices, which many older people have enjoyed, may be something he is examining.
Whatever legislation is eventually passed, it’s likely that you’ll either need to pay something towards your care costs, or meet the full amount yourself. But what is the best way to fund your future care when there is no certainty that you will need it Thankfully, there are long-term care products available at the point of need. Several insurers offer ‘immediate needs annuities’, which plug the gap between your income – usually from pensions and savings – and the care fees. When the money is paid directly to your care provider, it is tax-free. Immediate needs annuities can offer relatively good value, but you will need a lump sum to purchase one. That money could come from private pension savings, ISAs, or family members. Equity release plans,1 which allow you to access the value in your house without having to sell it, are a further possibility.
While the question of how care is funded by the state remains unanswered, it’s sensible to make financial plans. However, you should always do so with the help of a qualified financial adviser, who will be able to explain all your options, advise on state support from the NHS and your local authority, and recommend plans which are right for you.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
1 To understand the features and risks associated with equity release products, please ask for a personalised illustration.