Will anyone actually benefit from the ‘care cost cap’ ?

As either Pensioners or Prospective Pensioners, we could be in for a shock as it seems that most of us will pay double the fee limit, because of all the costs that are excluded, the Institute and Faculty of Actuaries (IFoA) has warned.

There are three types of care costs: (i) daily living costs; (ii) local authority set care costs; and (iii) top-up care costs. The government cap is being introduced in April 2016 and only applies in relation to (ii) the local authority set care costs.

A report by the IFoA on ‘How pensions can help meet consumer needs under the new social care regime’ found that, although there is a ?72,000 cap, on average people are likely to spend around twice this on care costs before reaching it, and this will increase the longer an individual is in long-term care.

Research has revealed that just 8% of men and 15% of women entering care aged 85 today are likely to reach the new social care cap.

The cap will only act as a ‘safety net’ to prevent individuals from facing catastrophic care costs. However, it will not offset or replace savings as the main means of funding care.

The research also revealed that 1 in 3 women and 1 in 4 men aged 65 today are likely to need care. Yet the average disposable income for retired households was only ?18,700 in 2011/12, well below the level required to fund the average long-term care costs before reaching the cap.

In the report, the IFoA gives consideration to a number of existing and new products which, with the right tax incentives, could help people plan ahead, including a new Pension Care Fund (PCF).

It stated that the PCF would be a ring-fenced, long-term care savings fund that would sit within the framework of a ‘defined contribution’ pension scheme. The savings would be treated for tax purposes like a pension and any money accumulated that was not used to fund care could be passed on free of inheritance tax, for use as a long-term care fund by a spouse or other beneficiary – an excellent idea.

A spokesman for the Department of Health said under the current system people with more than ?23,250 “are literally on their own and many have to sell their homes in a time of crisis to pay for the care they need. We are introducing the first ever cap on care which will protect people from catastrophic care costs and deferred payments so that no-one should be forced to sell their home in their lifetime to pay for care”?, however at ‘the end of the day’ the money is still going to come out of the deceased’s estate..

Caroline Abrahams, Age UK’s charity director said ‘While the Care Bill updates and improves the law, the cap on care costs is not as straightforward as it sounds, there’s a lot of ‘devil in the detail’ with the funding reforms and the small print is likely to make the new system less generous than originally hoped and fewer older people will stand to gain as a result.

The long and the short of it is that the care system is in crisis, the problem is that funding for social care has failed and is not keeping up with an ever increasing demand. A frank and honest debate is needed to determine who is going to pay for what. The government needs to give people a realistic idea of what they can expect to be paying in the future.?

As ever, if you would like our advice or help with your Inheritance Planning please contact us here.

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