With improvements in health care and living standards, the UK population is now living longer and it is expected that by 2030 the number of people aged 85 and over, will have doubled. Whilst this trend is a positive step forward for the UK, it raises concerns for care support – whether at home or in a residential setting.

The Government’s proposes to introduce legislation to introduce a cap the amount anyone will be required to pay for their care from April 2016 and it proposes to set that cap at an amount of £72,000. There will be a General Election before April 2016 and that could disrupt the proposals but even if the cap is introduced it will not be the panacea some Politicians may encourage us to believe it might be.

Any amounts you pay for care will only count towards the cap if you meet certain eligibility criteria and it would appear likely that your care needs will have to be at least “substantial”. If you don’t have “substantial” care needs any amounts you pay will not count towards the cap. The cap will only take effect from the point you develop “substantial” needs. However they are ultimately defined these eligibility criteria will give the state room for manoeuvre.

Even if you do develop “substantial” needs your progress towards the cap will be based upon the amount the local authority thinks you should be spending on care (the “usual” rate) and NOT on the amount you may actually have to spend. Furthermore, if your capital exceeds the thresholds set out above you will have to cover the full amount of your general living costs and the first £12,000 per annum you spend will be will be deducted from the local authority ‘usual’ rate. Only the excess element will count towards your cap.

For example, according to independent analysts Laing & Buisson local authorities pay on average £480 per week for residential care in 2012/13, which is about £50 per week less than the actual market price of residential care in the South West.  Assuming that the local authority ‘usual’ rate is set at £480 per week then, after deduction of general living costs of £12,000 per annum, only £250 per week of the amount you actually pay will count towards the cap. At this rate it would take 288 weeks, or over 5 ½ years, to reach the cap and only then will the local authority start to contribute at the “usual” rate. According to a report commissioned by BUPA in 2011, the average life expectancy of someone going into long term care is only around 2 ½ years. It would therefore appear unlikely that many people will actually benefit from the £72,000 cap.

Any amounts paid prior to April 2016 will NOT count towards the cap and only contributions paid after that date will do so. So many people currently paying for care will not see any benefit at all.

You should also bear in mind that, according to the latest Laing & Buisson survey, the average cost of residential care in the South West is around £530 per week. So even if you do reach the cap and the local authority has to contribute at the “usual” rate, you may still have to find around £50 per week (£2,600 per annum) from your own resources in addition to £12,000 annual living expenses. It is likely inflation will increase these amounts each year.

Anyone with capital below the Upper Threshold but above the Lower Threshold will have to pay a contribution based upon ‘Tariff Income’. At the moment every £250 of capital between these thresholds is deemed to produce £1 of assessable income per week. To illustrate this point someone with assessable capital of £115,000 (£98,000 over the lower threshold) and a net of tax annual income of £12,000 who enters a care home with fees of £550 per week will not receive any contribution from the State. Their actual income of £230 per week plus their ‘Tariff Income’ of £392 per week results in an assessable income of £622 per week which is significantly greater than the LA usual rate of £480 per week. The local authority would not contribute anything until combined income becomes less than the usual rate or the £72,000 cap has been reached.

Although the introduction of a mandatory Universal Deferred Payment Scheme from April 2015 may be welcomed by some it is worth pointing out that local authorities have been able to offer these arrangements on a discretionary basis for some time. The big difference is that at the moment they cannot charge interest on the debt until 56 days after a care recipient’s death or the sale of a house, whichever is sooner. In future it appears that interest will become payable from day one and the interest rate payable has not yet been specified. These points seem to have been overlooked in the rush to promote the headline that from 2015 no-one can be forced to sell a house to pay for care. Just note that to be strictly accurate the words “during their lifetime” should be added should be included!

In summary, if the Care and Support Bill is implemented, the reforms may help some people, but it is clear that many people will still need to make a substantial contribution to their care costs and the future of state support remains uncertain. Specialist professional help may assist you to plan ahead and reduce the impact as far as possible.

Dave Robinson

Partner, Albert Goodman Chartered Financial Planners and member of the Society of Later Life Advisors (SOLLA)

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