Social Care Funding –questions & answers

0 CommentsThursday • October 10, 2013 • by Steve Clark

Funding for long term care has become a higher priority over recent years and advice in this area is also important for many who wish to understand the level of care that they may/may not be entitled to receive.

Recent research suggests that many people are overestimating the amount of assistance the State will provide towards care costs in later life due to a fundamental lack of understanding of the new proposals. Here are some of the questions being asked.

According to the Office of National Statistics, the number of people predicted to live until the age of 100 will increase from 14,500 to 110,000 by 2035.

But with this increased longevity comes an increased possibility to having to pay care costs in later life – and potentially for a much longer period.

The Government’s proposals for reform of long-term care funding in the UK will start to be phased in as soon as 2015. Recent research commissioned by the Financial Times suggests that while there is a good awareness of some of the more highly publicised improvements to the current regime (such as the cap on care costs) there is still enormous confusion over how they will work and what they will cover.

With this in mind, we’ve looked at some of the more detailed aspects of the reforms in a simple Q&A style.

Q. Where are we at the moment?

A. Under the current system, if an adult needs to move into a residential or nursing home, the State will help cover the costs if the individual’s assets are below a means-tested threshold. This threshold is £23,250 in England.

Q. Who will be eligible for help?

A. Anybody who has assets below £118,000.

Q. Is everyone eligible for help?

A. No. Where assets (including the family home) are worth in excess of the new £118,000 threshold, the resident will need to self-fund until such time as capital resources are depleted below the threshold or until the £72,000 cap is reached.

Q. Does this mean that the maximum any person will have to pay towards their own care costs is £72,000?

A. Unfortunately not. This is because this amount only applies to the cost of care. Even then it is limited to an amount up to that which the local authority is willing to pay which will count towards the cap.

This means that if the cost of nursing care is £500 per week, but the local authority maximum is £300 per week, only £300 per week will count toward the £72,000 cap. Also the so-called ‘hotel’ costs are not covered. These are the costs of board and lodgings. The individual will be fully liable for these costs up to a maximum of £12,000 per annum.

Q. How does this work in practice?

A. Susan has assets to the value of £250,000. As this is greater than the £118,000 threshold, she will be required to fund her own care costs up to the cap of £72,000.

Susan chooses a care home where the cost of care is £500 per week. However, as the local authority is only willing to pay £300 per week towards care, only £300 per week will count towards the cap.

This means that the cap will be reached after 240 weeks (£300 x 240 = £72,000) by which time Susan will have paid a total of £120,000 towards her care. She will also have had to pay an additional amount towards her accommodation and food costs (circa £12,000 per annum).

Q. Will all contributions made by the resident count towards the cap?

A. No. As can be seen from the above, only an amount up to the local authority rate will count towards the cap. Costs incurred in respect of food, accommodation and personal expenses will not be taken into account either. Likewise, contributions made at a time that the resident is assessed as having ‘moderate care needs’ will not count. Contributions will only count towards the cap from the point that the resident is assessed as ‘eligible’.

Q. What happens when individuals reach the cap of £72,000?

A. The Government will then pay for the cost of care. The individual may still be liable for

• the costs of care that exceed the local authority maximum and
• the ‘hotel costs’ of care

Q.  How then would your summarise the key reforms?

A. We’d summarise it as follows:

• Introduction of a £72,000 cap on an individual’s liability to the cost of care.
• Means-tested threshold to increase from £23,250 to £118,000.
• Access to a deferred payment arrangements.
• ‘Hotel’ costs capped at £12,000 pa.

Q. What are the criteria for determining eligibility for assistance?

A. The eligibility criteria are yet to be announced but draft regulations indicate that the national criteria (which will be introduced in 2015) will be set at a level equivalent to ‘substantial’ in the current system – prompting organisations, such as Saga and Age UK, to express concerns that this will be too high a level.

Q. But at least the house is safe, right?

A. While the Government has made much of the fact that no-one will have to sell their home during their lifetime to pay for care, this does by no means guarantee that the house will be available to pass down to the next generation.

The value of the home will count towards the means test threshold of £118,000 unless an exception applies (for example, the resident has a partner who will continue living in the property).

However, rather than being required to sell the home upfront to pay for care costs, the local authority will put a charge on the property which will be recouped from the estate on the resident’s death. Under new rules, interest will accrue on the amount outstanding, increasing the debt still further.

Q. Does this mean that an individual will not have to sell their house to meet the costs of care?

A. Yes – at least during their lifetime under the deferred payment arrangements. However, the house may need to be sold after their death to meet accumulated costs and interest meaning that the heirs are denied their inheritances.

And finally…

The Care Bill is still making its way through Parliament and is likely to be subject to further change before the proposals are implemented. Ministers are aware of the growing confusion around social care costs, and the Department of Health has confirmed that this will be addressed with ‘new and comprehensive information resources for the public’.

Our Comments

What is clear is that those needing care are in many cases likely to face overall costs that are significantly higher that the £72,000 cap.

With this in mind, clients with concerns will want to consider the wisdom of  making provision for protecting accumulated wealth from the effects of the potential costs of long-term care. This is a minefield and an issue that requires specialist advice – not just from a financial adviser but also a solicitor.

At 44 Financial we work with specialists in this area and can refer our clients to a team that will be able to help them. If you’d like to speak about your family’s situation please give us a call.

Steve Clark

Photo courtesy of Debs Byrne Photos