Many people fear that the cost of care could force them to sell their own home and mean they leave little or nothing on their death to their loved ones. In response to such fears the Government has announced a cap on care costs, to be set at £72,000.

But how does this work for you? Will it simply cap the costs you pay at £72,000? Will it stop you having to sell your home?

Do you need advice on how to pay for care?

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The reforms

There are three key parts to the reforms:

  1. The introduction of a cap of £72,000 on eligible care costs, to be introduced in England from 2016. You should note this cap only applies to care costs and not the costs of accommodation in the care home
  2. An increase in the means tested threshold from £23,250, in England, to £118,000 from April 2016
  3. A deferred payment system, to be introduced from April 2015, which should stop you from having to sell your home during your lifetime to pay for the cost of care.

How will the reforms affect you?

Despite the headlines, the cap of £72,000 doesn’t simply mean your Local Authority will immediately start to pay your fees, once you have paid £72,000 towards the cost of your care.

The £72,000 cap only applies to the cost of care and crucially not to the amount you pay for accommodation in a care home. In other words, the cost of accommodation, food, heat and light, and other ‘general living’ costs are excluded from the £72,000 cap. Given average life expectancies for people in care it is highly likely many people’s care bills will fall below the £72,000 overall cap.

In a further blow to those people calling for more fundamental reform, the  cap only applies to the Local Authority rate of care costs, not what you are actually paying.

So, how does this work in practice?

The example below shows when a person funding their own care (ie. those with capital above £118,000 from 2016) could start to claim Local Authority help. As you can see, in practice this person would receive no help for a total of 297 weeks, equivalent to almost six years of care. Remember, you’ve only got a 1 in 8 chance of spending more than seven years in care.

Who pays?

You

Local Authority

 

Weekly Cost

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Excess above the Local Authority Rate

 

£131

 

Despite the cap of £72,000 you will pay all actual care costs in excess of the Local Authority Rate

Local Authority Rate less Living Costs

 

£242

 

You will pay your own care fees up to the cap of £72,000, in this example this means you will pay fees for the first 297 weeks of care

 

Your Local Authority only starts to pay for care after  297 weeks

 

Living costs

 

 

£231

 

The cap of £72,000 only applies for care costs, you will therefore pay all your own living costs

Total

£604

 

The above is for illustrative purposes only and a 3% annual inflation rate has been applied to Local Authority and care costs, to arrive at assumed 2016 figures. This is broken down as follows:

  • Care costs of £604 per week, which is the average cost of residential care in England and calculated from Laing & Buisson Care of Elderly People Market Survey 2012
  • Average Local Authority procured cost for Residential Care in England: £473 per week. Source Laing & Buisson Annual Survey of UK Local Authority Baseline Fee Rates 2012/13
  • Living Costs (also known as Hotel Costs of £231 per week). As per Department of Health Policy Statement 11th February 2013, costs excluded from the cap
  • Self-funder costs above the Local Authority rate of £131 per week, costs excluded from the the cap

In this example it is only Local Authority cost less Living Costs which count towards the cap, i.e. £473 – £231 = £242. So, the self-funder would need to fund 100% of their costs until the £72,000 cap is reached, which would take 297 weeks or 5.72 years at a total of £604 per week. Even after the cap has been reached they would still be liable for nearly 60% of their care costs.

Are you concerned about paying for care? We are here to help

Our team of Independent Financial Advisers are experienced in developing strategies for clients the length and breadth of the UK to help them meet the cost of paying for care.

If you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk