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Government to cap long-term care costs at £75k

by Daniel Grote on Jan 07, 2013 at 07:54

Government to cap long-term care costs at £75k

The government is to set the cap on long-term care costs at £75,000, rejecting as too costly the £35,000 level proposed by economist Andrew Dilnot, according to reports.

According to The Sunday Times, chancellor George Osborne (pictured) rejected Dilnot’s proposed cap, contained in a government-commissioned report into long-term care funding, due to the £1.7 billion annual costs.

A £75,000 cap will cost the government around £700 million a year. The cap would not cover the cost of paying for accommodation or food.

The government will set out its long-term care plans in its mid-term review, to launched this afternoon, together with its state pension reforms.

23 comments so far. Why not have your say?

grant hughes

Jan 07, 2013 at 08:17

If it doesn't cover accommodation or food........what exactly does it cover? Those 2 are the largest costs!

More spin!

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Charles Rickards

Jan 07, 2013 at 08:24

Grant, it covers the cost of red tape and bureaucracy!

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Kevin Neil

Jan 07, 2013 at 08:27

Not more spin Grant, but in line with the Dilnot Report, which actually helped to make the distinction between actual care costs and "hotel" costs clearer.

This is quite an easy concept to grasp in my opinion if you consider the comparison between someone who goes into residential care and someone who elects to receive care at home. Why should the first person have all their costs paid for, including all food, heating, lighting, and accomodation, when the second person still has to pay those costs out of their income?

Restricting the cap to care costs only places both of the above parties on an equal footing.

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SJ

Jan 07, 2013 at 08:46

If this becomes reality it could well lead to a ressurection of the market for LTC insurance, because people would know what they need to insure for.

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grant hughes

Jan 07, 2013 at 08:47

Hi Kevin

I get the point, but my parents were taken from their home and put in care against their wishes. Per naps a better phrase for hotel costs would be detention costs!

Also no care home breaks down the hotel costs against the care costs, so how do you assess the liability? Also what stops them from hiding one cost in the other?

If we are prepared to spend £50k a year on keeping someone in prison, this still doesn't seem equitable.

......but I get your point. Believe me your outlook will change when this happens to your family.

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Keith Cobby

Jan 07, 2013 at 09:08

This is a proposal at this stage. Let us see the detail in the legislation.

£75,000 would seem to be the figure this week. I wonder what it will be next week and in five years time.

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gordon pugh

Jan 07, 2013 at 09:09

Hi you need to be aware that there is a big difference between nursing home care and residential care in terms of staffing costs as you need fully qualified nurses in a nursing home

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The Other Side

Jan 07, 2013 at 09:11

Regardless of where the cap is set, clients will still need advice in this area, and it is a rapidly increasing need.

The main thing to take from this is that nothing is yet set in stone, therefore if clients or their parents need to consider long term care fees, then the advice path still needs to look at the legislation that is in place now.

Although there are no insurance products for future funding, there are still products out there for securing care fees now.

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Julian Stevens

Jan 07, 2013 at 09:52

I still don't understand why the government refuses to countenance the idea of allowing tax relief on premiums to LTC insurance policies, given that 20% of premiums of, say, £200m p.a. is hugely less even than £700m p.a. Plus, of course, a private sector solution would relieve the public sector of a lot of administration and generate all sorts of knock-on tax revenues such as corporation tax, income tax, NIC. Time and time again, private sector solutions have been shown to be vastly more efficient and cost-effective than public sector ones.

But then what is so obvious and logical to those in the private sector so often seems to be beyond the capacity of those in the public sector to grasp.

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Robin Stamp

Jan 07, 2013 at 09:59

gordon

whilst you are correct, in reality the cost of the nursing eliment is already covered( paid by Gov, or at least part covered) by the registered nursing care contribution or in some cases the NHS

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Paul Barnard

Jan 07, 2013 at 10:41

Nursing costs are paid by the NHS at the moment. The new proposals won't cover accommodation and food. What else would you rack up a bill of <£75K on then?

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PAUL WOOLLEY

Jan 07, 2013 at 11:02

Another missed opportunity by this timid government. I wish some of them had some balls, bring back Tarzan.

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Kevin Neil

Jan 07, 2013 at 14:06

@ Grant

It already has - twice!

The first care fees funding plan on which I advised was in respect of the mother of my brother-in-law who I knew quite well. Going into care was absolutely the right choice for her as it gave her a new lease of life whereas staying at home would probably have seen her die within a short space of time.

The second occurrence was in respect of my father, who was cared for at home for a number of years by a combination of my mother, family, and outside agencies when he could have easily gone into a care home. Again it was absolutely the right choice for him (and us).

I am sorry that your own personal experiences has left you bitter, but please do not make snapshot judgements of others on this basis.

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Kevin Neil

Jan 07, 2013 at 14:16

@ Julian

I know you have made the same argument on a number of occasions whenthe topic of care fees funding has arisen, but I am afraid that the argument you make is far from logical and clear cut.

There have in the past been pre-funded LTC products, and they have spectacularly failed to take off. In addition, the plans that have been sold have performed extremely poorly for both the companies that launched them and many of the clients who took them out.

The main reasons for these poor outcomes have been that for the most part the insurance companies were selected against. Take out the fact that a large part of the market has no need of any type of plan because their assets are at a low enough level that the State will pick-up their care costs; and take into account the fact that only 1 in 4 people aged 65 will require care, and you end up with most of those taking out Plans being those who anticipate that they will need care at some point because of family history or existing medical conditions.

Just providing tax relief on the premiums will not resolve this conundrum; what is needed is for insurance companies to have some degree of confidence that enough people who will never claim will take out plans to enable the pooling of risk to work.

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grant hughes

Jan 07, 2013 at 14:25

@Kevin,

my appologies for making assumptions.

this is all a little raw for us as they were picked up by social services only a few weeks ago and we didn't even find out until a few days later....we thought their phone was broken.

we are now struggling to afford care fees of £2,000/week for the 2 of them as we haven't yet had a chance to sell the house and the county council is dragging its feet on the deferred payment side.

all a bit of a nightmare!

any thoughts on this, from your experience, would be appreciated. although, i suspect that they will end up paying until the estate is down to the £23k each as these rules don't come in for a while anyway and they didn't have much to start with!

all rather sad and frustrating for them as well as us.

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michael coxson

Jan 07, 2013 at 15:27

Insurance company,s pooling risk ? in the days of integrity perhaps.

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Saran

Jan 07, 2013 at 16:40

Grant, how refreshing to see someone apologising for making assumptions and being polite on a forum. Sorry to hear about your family. There is an excellent lawyer who specialises in this area; Jon Wilkey of Gwyn James in Cinderford who may be able to help you or point you in the right direction on this.

It is so difficult to advise when there are such large regional variations in the interpretation of the rules for care. I do hope this will improve in the future, people need to be able to plan with certainty in their financial lives.

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Julian Stevens

Jan 07, 2013 at 19:51

To Kevin Neil ~ I'm not quite sure what you mean by pre-funded LTC products.........that have performed extremely poorly. Pre-funded LTC products (as I understand them) are quite different from pure LTC insurance plans, the latter containing no element of investment.

I can understand that the people most likely to be attracted to LTC insurance plans will always be those who consider themselves most likely to claim, but is this so very different from people wanting any type of insurance cover? If you're a sub-standard risk, the underwriter/s will simply apply a hefty loading or reject the application ~ that's the way insurance works in any field.

The problem, as I see it, is that the very idea of having to go into expensive LTC is a spectre with which people simply don't want to engage until it's too late and it's that type of mindset that needs to be changed.

Some years ago Aviva embarked on a push into the LTC insurance market and staged a series of presentations nationwide that many IFA's, myself included, found very persuasive. Aviva offered to co-host presentations to invited clients but nobody turned up. For people who were invited to those presentations but chose to ignored the invitation and then found themselves having to sell their homes, I have little sympathy. Insuring against the ravages of LTC costs isn't something that should be confined just to the person/s at risk ~ it should be a family matter. Paying £100 p.m. for 10 years to protect an asset (the parents' home) worth perhaps £400,000 is a pretty sound investment proposition whichever way you cut it.

Opting to do nothing is a stupid choice and the incentive of tax relief on premiums to LTC insurance policies would surely encourage a lot more people to think again. Why should the rest of us be forced to pick up the tab for families who could but aren't prepared to plan ahead? LTC insurance can never be cheap but, with the aid of tax relief, could at least be affordable if approached as a family issue before it becomes a problem just around the corner.

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Kevin Neil

Jan 08, 2013 at 09:28

Julian

I don't think it would encourage a lot more people to think again. The fundamental problems are: -

1. A large part of the elderly population has no need for it, as they have few / no assets and will always have to rely on the State to provide.

2. A large number with assets will not be able to afford the premiums; your example of £100 pm is £2,400 per annum for a couple, or 10% of income if theirs is £24,000. I advise quite a few elderly clients in or at retirement and the majority of those comprising the "squeezed middle" with enough in assets to be put at risk do not have incomes at this level.

3. £100pm would produce total premiums of £24,000 over 20 years, not even enough to cover one year's residential care fees today. I just do not think these numbers stack up.

4. A lot of those wealthy enough to be able to afford the premiums would prefer to take their chances as there is a 3 in 4 probability of not needing care, and if they do, they will have a lot more idea of what the potential funding need will be and where best to receive their care.

For all these reasons I don't think the market is large enough and also, in the current climate the idea of potentially spending more hundreds of millions of pounds on tax relief for an uncertain product solution is a non-starter.

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Kevin Neil

Jan 08, 2013 at 09:34

@ Grant

I would back Saran's comment regarding Jon Wilkey of Gwyn James - he is very knowledgable in this area.

With regard to advice options on paying for care and other associated matters I am a member of Symponia, a national network of specialist care fees advisers. The website is www.symponia.co.uk. Their is a useful handbook covering the whole range of issues associated with long-term care that you can download (or request a hard copy) as well as a Directory of adviser members, so you can have a look at the members local to you and make contact. We all offer a free introductory meeting, so please take a look.

I hope you are able to resolve the problems you and your family are facing and get Social Services to treat you all respectfully and responsibly. Good luck!

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Paul Barnard

Jan 08, 2013 at 10:17

Kevin- your arguments could apply equally to PHI or indeed any type of insurance. Most people don't make a claim on their insurance policies. When pre-funded was availablein the 90's I used to sell quite a few and to the right people they were invaluable.

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Julian Stevens

Jan 09, 2013 at 10:25

To address in order the points made by Kevin Neil:-

1. Those who can't afford the costs of LTC or even to insure against them and who don't have assets that would be subject to forced sale to fund them aren't relevant to this discussion. Those people will automatically become a burden on the State and there's nothing that can be done about that. The issue is about people forced to liquidate their investments and/or sell their home.

2. The squeezed middle as you call them may not be able to afford £100 p.m. to pay for an LTC insurance plan, but their families might well be able to, effectively to insure their inheritance. It might well be a complete waste of money, but then so is any insurance against which no claim is ever made.

3. £24,000 would be the premiums paid, not the cover provided.

4. If those who could afford premiums of £100 p.m. to safeguard assets they hope to pass on to the next generation choose not to do so and then lose those assets, in full or in part, as a result of having to go into care, that's their look-out. All I'm saying is that they should be given the choice and the incentive of tax relief to encourage them to consider it.

Maybe 3 out of 4 people don't need care (I anticipate this may fall to 2 out of 3 before too much longer), but there's a lot of angst on the part of the families of those who do have to go into care and who see their hoped-for inheritance ravaged by LTC costs. My point is that the government should at least consider the vastly less costly option of tax relief on premiums to LTC insurance plans instead of going straight for the Dilnot option at a cost somewhere between £700m and £1.7Bn annually. If there's virtually no take up of the former, then the government can at least say it tried to incentivise families (not just individuals) to insure against the risk and it won't have cost much to find out whether or not that route works. In addition to the knock-on benefit of increased tax revenues from a private sector solution, there would also be a reduction in the resources of the Social Services that are presently allocated to the problem. Put all those things together and the cost to the Exchequer of the tax relief route could be offset by as much as half.

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Phillip H

Jan 10, 2013 at 09:05

I really don't see the problem here. As has already been mentioned, those who cannot afford care costs will be funded by the State. Those who have in excess of £23,250 will have to fund it themselves (subject to a cap of £75,000). Ok the £75,000 cap does not include residential costs etc which is the vast majority of the care element but its still better than the current situation. There are also various disregards on family homes etc when someone still resides there so the family home is safe in some cases.

The argument is used too often that "my parents worked hard for their assets and they are going to lose out due to the costs of care". 2 point on this:

1. In the vast majority of cases, people's main asset is their home. They have not worked escially hard for this (no more than most). They have very likely been part of a generation who have invested buttons in a house and seen it rise an extraordinary multiple, not through hard work, but purley due to luck (rising prioperty prices).

2. I do not see how these individuals are going to lose out. They pay rent for the accomodation. When they can't afford the rent, the State pay. The only people that will lose out are those who are due to inherit. They are usually the ones making all the noise and they most certainly haven't worked hard for it.

This doesn't account for all but worth conisdering in the moral context. The standard of care is another issue and I sympathise with this issue (having experienced it myself).

Oh and what is the alternative? Increase, tax rates to 25, 50 and 55%?

And more importantly from a professional point of view (given that most of us here I guess are financial advisers), what an amazing opportunity to give advice!

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