In recent years, the question of how we as a country pay for social care has bedevilled governments. Last week the subject hit the headlines again after a vote in the House of Commons.
During the heated debate, MPs raised concerns over the fairness of an amendment to the government’s Health and Social Care Bill. They argued it would hit hardest those living in less affluent areas of the country, where house prices are lower.
Following the vote which the government narrowly won, where does this leave people who are concerned about how they might fund the cost of social care, for themselves or a loved one?
Social care is proving increasingly expensive
According to business intelligence provider LaingBuisson, in 2019/20 the average annual cost of residential care in England was £34,684. However, there are significant regional differences, with care home costs in the South East of England averaging £43,264 for basic care alone. Where nursing care is required, the average bill jumps almost £5,000 to £48,048, and again to £49,712 a year where dementia care is required.
Those who pay care home fees out of their own pocket (known as self-funders) typically pay around a 41% premium on top of what a local authority pays. With staff shortages in the care sector leading to rising wages, and higher living costs in the pipeline such as heating, it’s likely care home costs and resultant fees will continue to rise.
How does the new system proposed by the government match up against the current one?
The basic principle that the amount of capital a person has affects the amount they’re required to contribute to care costs and the amount that, usually the local authority contributes, remains the same. Capital includes savings, income and property.
Under the current rules, the amount of support care home residents receive from their local authority in England is determined as follows;
A person with capital in excess of £23,250 is not eligible for state support. According to LaingBuisson, 167,000 people or their families are ‘self-funders’.
A person with capital of between £14,250 and £23,250 is eligible for local authority support. However, they are charged a ‘tariff’ income of £1 per week for every £250 of capital above the lower limit i.e. they are treated as if they have an extra £1 a week income
People with capital below £14,250 are eligible and are not charged a ‘tariff’ income.
In all cases where people are eligible for local authority funding, they are still required to contribute their income towards the cost of their care. However, this is subject to disregards, such as earnings. People in residential care are allowed to keep what is called the Personal Expenses Allowance to pay for everyday items such as toiletries, which is currently set at £29.30 a week.
There are different rules in Scotland and Wales. In Scotland the upper capital limit is £28,750. While in Wales the upper capital limit is £50,000. The Bill passed in the House of Commons only applies to England.
What’s different about the new proposals?
The biggest change is the introduction of an £86,000 cap on the amount of money a person who goes into care will be expected to contribute towards the cost of that care.
The threshold (upper capital limit) above which a person is responsible for paying for their own care will go up from £23,250 to £100,000
People with up to £100,000 in assets will qualify for means-tested local authority support.
The lower capital limit, below which people will not have to make contributions for the costs of their care, will rise from £14,250 to £20,000.
Where an individual has capital of between £14,000 and £100,000, they’ll be charged a ‘tariff’ income of £1 per week for every £250 between the lower and upper thresholds.
The government has announced that it will change the regulations to allow everyone in receipt of local authority support to make top-up payments themselves. Any top-up fees paid will not count towards the cap on care charges and will remain payable after the cap is reached.
Where a person does qualify for support from their local authority, this will only be towards meeting the person’s ‘eligible needs’ as set out in legislation.
What counts towards the £86,000 cap?
Only money spent on meeting a person’s personal care needs will count towards the £86,000 cap. Daily living costs such as food, rent, utility bills and boarding will not count. However, these will be capped at £200 a week, ensuring people get to keep more of their income and assets.
Once a person reaches the £86,000 lifetime cap on personal care costs, they will still be required to pay their daily living costs (subject to the means test).
On 17 November, in a major and controversial change to their previous proposals, the government announced that only the amount an individual contributes towards their social care costs will count towards the £86,000 cap. By excluding what the local authority contributes, the government estimates it will save around £900m a year. However, as a result, it will take longer for people receiving residential social care to reach the £86,000 lifetime ceiling. They will also end up spending more of their financial assets.
One expert told the Treasury Committee that everyone with assets of less than £186,000 would be worse off than before this change.
There do not appear to be any changes to the current rules, whereby in certain circumstances the value of a person’s property is disregarded and not included as part of their capital. An example is where the person in care’s partner has been living in the property continuously.
Currently, where there is no such disregard and a person doesn’t wish to sell the property, they may be able to enter into what is called a deferred payment agreement. Under the terms of such an agreement, the council takes a charge on the property and gets back the costs of care when it is eventually sold. However, the government has said it will review this.
The new arrangements are due to come into operation from October 2023.
The new system is designed to fix the fact that people are currently having to sell their homes for care. Dealing with this problem would also allow people to pass on more of their wealth to their family. The government estimates that one in seven adults over the age of 65 face potentially “catastrophic” care costs, which the it says can mean them having to sell their home.
The lifetime cap of £86,000 on how much an individual contributes to the costs of their care undoubtedly means that many people who previously would have had to sell their homes won’t now have to. Many will have other assets such as savings or investments, as well as income from a pension that they’ll be able to call on first in order to meet their care costs. And as soon as the amount spent on their care funded from these assets goes over the £86,000 threshold, they will be entitled to local authority funding, leaving their property untouched.
LaingBuisson executive chair William Laing was quoted as saying that private payers (self-funders) would reach the £86,000 cap after about three years of residential care and six years of homecare. And even if they do have to sell their property, once £86,000 of the proceeds has gone towards their care costs, they will be still be left with substantial assets.
A proportionate imbalance?
Someone who sells their property valued at £600,000 will be left with assets worth £514,000, allowing them to pass on more of their wealth to their family than under current arrangements, where there is no cap on the amount that a self-funder may have to pay. However, someone who sells a property value at £350,000 will be left with only £264,000. This has led to criticism that the new system benefits people in areas of the country where house prices are high at the expense of those living in less affluent areas.
Further scrutiny to follow
Having successfully passed through the House of Commons, the Health and Social Care Bill faces further scrutiny in the House of Lords. Assuming it comes out substantially unscathed, as the examples above illustrate the Bill’s major legacy is that people who already have substantial assets will be left with significantly more of those assets.
In such a scenario as people get to that stage in life when they begin to think about the financial implications of going into care, their focus is likely to turn towards how to maintain their wealth, with inheritance and estate planning also coming to the fore.
Implications for financial planning
Under the current rules, there are a number of things people can do to avoid having to sell their main home in order to pay for care. Each involves trying to ensure that the value of their home is not included in the means-test, which determines who is responsible for care costs.
As covered previously by Head of Private Clients at Courtiers, Graeme Clark, these efforts include disposing of the property, co-ownership or joint tenancy, the use of trusts, and equity release. While each has its merits, these are complex areas with significant risks attached, particularly around falling foul of the rules on deliberate deprivation of assets. Before going down any of these roads, it is strongly recommended that you speak to your Courtiers Adviser first.