The Government has announced that the introduction of the much publicised cap on the cost of care in old age is to be pushed back to 2020.
It had been expected that the cap on the cost of long-term care, which was to be set at £72,000, would be introduced from April 2016. However, the Department of Health has now said it will be delayed until 2020, although many experts believe that with the costs associated with the policy being so high it is unlikely ever to become a reality.
When originally proposed there were three key parts to the reforms:
- The introduction of a cap of £72,000 on eligible care costs, to be introduced in England from 2016. The cap only applied to care costs and not the costs of accommodation in the care home
- An increase in the means tested threshold from £23,250, in England, to £118,000 from April 2016
- 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.
Even at the time they were announced, the proposals were criticised for being overly bureaucratic, expensive and unlikely to benefit many people; despite the headlines they attracted at the time.
It’s now clear that the Government has decided to push the proposals back to the end of this Parliament and possibly indefinitely. Announcing the change Care and Support Minister, Alastair Burt, said: “A time of consolidation is not the right moment to be implementing expensive new commitments such as this, especially when there are no indications the private insurance market will develop as expected.”
How will the delay affect you?
Probably not as negatively as you might first imagine.
Although the headlines and rhetoric made the care of £72,000 sound attractive, in reality it would only have applied to the cost of care and crucially not to the amount paid for accommodation in a care home. In other words, the cost of accommodation, food, heat and light, and other ‘general living’ costs were to be excluded from the £72,000 cap.
Furthermore, the cap would only have applied to the Local Authority rate of care costs, not what the actual cost of care in the private sector, which is almost always higher.
Given average life expectancies for people in care, it is highly likely many people’s bills would have fallen below the £72,000 overall cap.
How can you pay for your care?
With the care cap now delayed until 2020 and the possibility that it will never see the light of day, what options do you have to pay for your care, or that of your parents, in old age?
Essentially there are seven choices:
1. Savings If you have savings, perhaps held in a tax-free Cash ISA (Individual Savings Account), you could use the interest you receive to help pay for the cost of your care. Whilst this option carries no risk to your capital, with interest rates currently being so low, you may prefer to consider alternative options which may pay a higher return.
2. Invest to produce an income One alternative to using the interest from savings accounts is to consider investing, perhaps in a portfolio of funds to match the level of risk you are prepared to take.
Income could be taken monthly, quarterly, or annually, to help pay the shortfall in your cost of care. But remember, whilst you would hope to make a better return on your investments than any savings you hold, your capital is at risk and the value could rise as well as fall. If your capital were to fall in value, this could impact your income, or see your capital eroded even quicker if you maintain the same level of income.
3. Immediate Needs Annuity / Care Fees Plan / Care Fees Annuity When you retired you may have bought an Annuity with your pension fund, this option works in a very similar way.
With an Immediate Needs Annuity, also known as a Care Fees Plan or Care Fees Annuity, you pay a lump sum to an insurance company who guarantees an income for the rest of your life, however long that is, to pay for your care.
The income is guaranteed and can be index linked in line with expected increases in the cost of care. Furthermore, if it is paid directly to the care home the income is tax-free.
The capital used to buy the plan is immediately outside of your estate for Inheritance Tax purposes, which might be a valuable additional benefit.
A Care Fees Plan is therefore a low risk option and guarantees to continue to pay income until you die. However, if you die sooner than expected you could receive less back than the original capital lump sum, although there are options which can help to offset this risk. Conversely though, if you suffer from ill health this will be taken into account when you make an application for a Care Fees Plan, which could help reduce the cost.
4. Selling your home If you live alone and need residential care, you could consider selling your home, to release capital, which could then be put into a savings account, invested or used to buy an Immediate Needs Annuity.
5. Letting your property The idea of selling your property might not appeal. Perhaps you feel that prices will rise over the next few years, or you may return to the property at some point in the future. You therefore could consider letting your property and using the income produced to help meet the cost of your care.
Remember though, any rental income you receive will be added to your existing income and then taxed.
6. Equity release If you have a partner or other financial dependent living with you and you need residential care, selling your home is unlikely to be an option. You therefore could consider using an Equity Release plan to help fund the cost of your care. No interest is paid on a monthly basis, as it is with a traditional mortgage, but it rolls up and is repaid when the house is eventually sold. Using Equity Release is a big step as it could significantly reduce the value of your estate when you die. Careful consideration should be given to all other options before Equity Release is used and you should be careful to ensure you fully understand all the implications of using such a plan.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
Check that this mortgage will meet your needs if you want to move or sell your home or your family to inherit it. If you are in any doubt, seek independent advice.
7. Family assistance If the options outlined above are insufficient to cover the cost of your care, you could look to your family for help. Whilst this is often seen as a last resort, many children would rather contribute to the cost than see their parents receive substandard care or have to put up with poor accommodation.
The answer for most people when faced with a large bill for their care lies in combining a number of solutions, for example one insurer offers a hybrid scheme, mixing the benefits of equity release with a Care Fees Plan.
Worried about the changes?
If you are worried about how the changes will affect you, or how you will meet the cost of long term care our advisers are here to help.
Call Bev or Sarah today on 0115 933 8433 or email info@investmentsense.co.uk, we’re here to help.
