What does the government/industry need to do to make long term care funding easier?

Care and support services continue to face ever growing and unprecedented challenges as a result of cuts in spending and continued increases in demand. Care services have suffered from public service cuts, despite the Government’s intention to protect the front line, making people uncertain and confused.

In particular, following the Dilnot commission, reform was expected with the Care Bill, which would have introduced a cap of £72,000 in respect of care costs as assessed by a local authority. The state would then cover reasonable care costs once the £72,000 had been reached. Those with assets of less than around £17,000 and insufficient income would be entitled to support towards these costs. Originally the care cap was to come into effect by April 2016, but the Government has shelved it until 2020 as part of the ongoing spending review and fears of £6b costs of implementation.

Typically, around 60% of care fees are spent on staffing costs, with care workers poorly paid, meaning the living wage increases are going to have an effect on the cost of care, especially as costs vary due to the geographic lottery of care. Some reports show that the increase in the living wage could cost the care sector £1bn by 2020.

The government should end this ongoing political uncertainty and prioritise the care sector as an area requiring reform. Currently, the rules, where broadly assets of over £23,250 result in self-funding care, are complex and can be unfair with a postcode lottery with councils acting in different ways.

The government’s priority should be to simplify the system and clarify the division between state and private funding of fees.

Most people have little or no experience of arranging care. Mistakes can be expensive and cause distress to the person needing care. A professional care fees adviser can help navigate the complex minefield of regulations and ensure that care fees planning fits with an individual’s overall financial position.

Historically, there has been little appetite amongst clients in good health to buy insurance to cover care fees or pre-fund the cost of care. It tends to rank low on a list of priorities when weighed against maximising retirement income and helping children on the property ladder.

Of course, the situation changes once care is required and the priority turns to funding care whilst preserving capital as much as possible to avoid the risk of running out of money.

Sometimes renting out the family home can supplement income sufficiently to avoid a forced sale. Alternatively, it may be possible to fund care by using equity in the family home, where a local authority pays care fees in exchange for a charge over the family home.

For affluent individuals, self-funding care fees out of pension and investment income may be a workable solution, whilst for individuals with low incomes and little or no savings, a state safety net will always be required.

The challenge is for the squeezed middle, where the state considers based on a means test that an individual should contribute towards the cost of care, but income and capital are only quite modest.

For these people, which make up a large part of the population, tax breaks to encourage saving and innovation from the industry are required, perhaps a care ISA combining an element of care fees insurance with savings, so capital can be passed on death if care is not required.

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