New social care cap will only help 10 per cent of elderly

The new social care cap being introduced in 2016 will help just eight per cent of men and 15 per cent of women, according to new research.

The report from the Institute and Faculty of Actuaries (IFoA), has found just this small minority of people entering care aged 85 are likely to reach the new social care cap, which only applies to local authority set care costs. There are three types of care costs: daily living costs; local authority set care costs; and top-up care costs.

Under the cap those who spend £72,000 on their care whether in their home or in a residential care home would have any further costs paid for by the state. Board and lodging are not covered by the cap and will continue to be means tested.

The report ‘How pensions can help meet consumer needs under the new social care regime’, found that, although the cap is set at £72,000, on average people are expected to spend around £140,000 on care costs before reaching it, which can increase to around £250,000, even allowing for the cap, if an individual is in long term care for 10 years.

Cost will be higher as only official local cost of care will count

The cost will be much higher because only the official local cost of care will count, that is the amount a council says it would pay for a place in a home, which is often significantly lower than most privately-funded residents pay.

Thomas Kenny, one of the authors of the IFoA's report said: “Recent research data shows that one in three women and one in four men aged 65 today is likely to need care.

“Yet the average disposable income for retired households was £18,700 in 2011/12, which is below the level required to fund the average long term care costs before reaching the cap.

“Anyone who is expecting that the cap will pay for care is in for a shock. The cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.”

The social care cap is in response to recommendations by economist Andrew Dilnot in the Dilnot report which came out in 2011. These suggested there should be a cap of £35,000 on the amount an individual would have to pay for care.

Significant regional variations in expected care costs

The IfoA also found significant regional variations in expected care costs and the time it is expected to take for the care cap to apply.

In London, a person entering a residential care home aged 85 is expected to reach the cap in around four years and incur a personal cost of around £117,000 before reaching the cap.

However in the West Midlands, a person entering a residential care home aged 85 is expected to reach the cap in around seven years and incur a personal cost of around £170,000 before reaching the cap.

Cap will act as a safety net

The cap, which is planned to be set initially at £72,000, will, the IFoA says, act as a safety net that will prevent individuals from facing catastrophic care costs.

However, it will not offset or replace savings as a key means of funding care. The IFoA believe that message needs to be made clear by all parties involved in advising and planning for later life income needs and long term care, including the Government and the financial services industry.

Mr Kenny added: “Second to property, pensions are the largest wealth asset for most people. Pensions are largely understood, there is an existing savings framework for them and, with the right tax incentives and flexibility, there are products that could help people to meet any care needs that they may have in the future.

“However, we also found that there is no silver bullet – no one product that would suit everyone’s personal circumstances to help them meet care costs. In the report we consider a number of existing and new products which, with the right tax incentives, could help people plan ahead, including a new Pension Care Fund.”

The Pension Care Fund (PCF) would be a ring fenced long term care savings fund that would sit within the framework of a defined contribution pension scheme. The savings would be treated for tax purposes like a pension and any money accumulated that was not used to fund care could be passed on, free of inheritance tax, for use as a long term care fund by a spouse or other beneficiary.

Department of Health defends social care cap

In response to the report, a Department of Health spokesperson said: “The current system for paying for care is completely unfair – people with more than £23,250 are literally on their own and many have to sell their homes in a time of crisis to pay for the care they need. Our reforms will mean more people get financial help sooner and keep more of their assets.

“We are introducing the first ever cap on care which will protect people from catastrophic care costs and deferred payments so no one should be forced to sell their home in their lifetime to pay for care. On top of this we have increased the means testing level so that Government help kicks in far earlier than before, meaning two thirds of people who reach the cap will pay less than £72,000.”

The spokesperson added: “We’ve always been clear that people in residential care will remain responsible for paying their living costs – food, accommodation, heating bills etc – as recommended by the independent Dilnot Commission and set out in our public consultation.

“We’re also making changes so people who pay for their own care will be able to ask their local authority to arrange this meaning they will be able to buy care at the same price as their local authority. This will make the system fairer for everyone.”