Long term care Q & A: Everything you need to know about the changes to social care

Financial News

Everything you need to know about the changes to social care_istockPoliticians have wrestled with the problem of how to meet the cost of caring for an aging population for many years, yesterday saw the latest attempt, this time by the coalition government, to address the issue.

The new reforms follow the Dilnot report and are certainly bold, but how will they affect you? Do you need to take any action now? Will you be better or worse off if you need care?

We take a look at all these questions and more.

So what is changing?

There are two key changes; the first sees the introduction of a cap of £75,000 (based on a prediction of prices in 2017/18) on the amount anyone will pay towards their care costs. The second change will see a rise in the assets an individual can hold, before they must pay for their entire care costs, from £23,250 to £123,000.

At present the state only helps meet the cost of care if an individual has assets of less than £23,250, once the changes are introduced this will rise significantly, with help given to people who have assets, crucially including their property, up to £123,000.

The government also announced that from April 2015 no one will have to sell their home to meet care fees. If people cannot afford to pay care fees without selling their home they will have the right to defer the sale until they die.

What will people pay towards their care after these reforms are introduced?

The amount a person pays towards their care will be capped at £75,000, with help from the state for people with assets below £123,000.
The following table shows various sets of circumstances and what people will have to pay in the future, depending on the value of their assets.

[table id=1133 /]

Source: BBC, Department of Health

In addition, accommodation costs, up to a maximum of £12,000 per year, would also have to be met.

Why are these changes being made?

With increased life expectancy comes a greater likelihood of needing care. With such a low cap on the assets people could own before they had to meet all their care costs there has been mounting concern over the number of people who will be forced to use their own assets, possibly even having to sell their home, to meet the cost of long term care.

Furthermore bills for long term care are currently uncapped, meaning that there is often little, or nothing, left to pass on to the beneficiaries if care has been needed for a prolonged period of time.

Current figures show that around 40,000 people each year have to sell their home to meet the costs of long term care. This is a number the government would clearly like to reduce and announcing the new policy, the Health Secretary, Jeremy Hunt, said people faced “often ruinous costs…with little or no assistance from the state.”

How many people already pay for their care?

It’s hard to get exact figures, however estimates show that around half of people passing the age of 65 will need care costing up to £20,000, whilst 10% of people will spend over £100,000 on care.

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The good news is that around 25% of people, according to the Department of Health, will have to pay “very little or nothing at all”.

Surely this is good news?

Yes, we believe it is a welcome step in the right direction, but there are issues.

People should remember that the £75,000 cap, double that suggested in the Dilnot report, only applies to the cost of their nursing care, for example help washing and dressing and not the cost of accommodation, including rent, heating, and food, which can be hugely expensive, although this element is capped at £12,000 per year.

Furthermore, the proposals will only apply in England, people living in Scotland, Wales and Northern Ireland will have to work to a different set of rules, whilst it is not expected that the cap will be introduced until 2019.

Finally, whilst the reforms should stop people having to use up all their assets to pay for care, leaving nothing to their dependants, they contain no measures to improve the quality of care, something many campaigners are keen to see.

How much will the reforms cost, and who will pay?

The government estimates that the reforms will cost £1 billion and will be paid for, in part, by freezing the Inheritance Tax threshold at £325,000 per person for three years from 2015. This represents a swift shift in government policy, with George Osborne announcing a 1% increase in the IHT threshold, from 2015, only a month or so before Christmas.

The changes to IHT will only fund part of the money which is needed; the balance will come from previously announced changes in the National Insurance and pension system.

How have the proposals been received?

The reforms have been met with a predictably mixed reaction.

For the coalition, Jeremy Hunt said that the reforms would give people “greater peace of mind”, however Labour said the plans represented only a “modest step forward”.

Andrew Dilnott, whose report prompted the reforms, told Radio 4’s Today programme: “It (the cap) is higher than I would have wanted. I regret that. But I recognise that the public finances are in a particularly tricky state.”

Do you need to take an immediate action?

The government hopes that these changes will encourage people to start making provision for their future care needs, in the same way they do for their retirement. Whether this ever happens is open to debate, after all almost everyone retires at some stage in their life, whilst not everyone needs care.

Although the plans will certainly mean smaller care bills for all, which is to be welcomed, people who want to maximise the amount of money they leave to their dependants when they die still need to plan carefully, the bill for care could still be significant.

Our team of Independent Financial Advisers in Nottingham is experienced in developing strategies for clients the length and breadth of the UK to address the issue of long term care.

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