Coverage of the Government's response to the Dilnot Commission Report has been pretty negative because it has delayed a decision until the nest comprehensive spending review -Good says Richard walsh
Actually, I think this is probably no bad thing. The issues involved are exceptionally complex and it is vital that a large measure of cross-party consensus is achieved on proposals for change to ensure that they will last for a long time once they are introduced.
The worst possible situation would be a partisan set of financial changes which would be continuously amended with different administrations and ministers. Consumers and their advisers need a stable environment to allow personal decisions on long term future financial planning.
It is very encouraging to note that Labour are committed to engaging with the government on this issue.
Here are some of the issues to be addressed. First the level of the cap, how the cap rises over time, what is and is not counted in the cap, and the contribution to general living costs that people are expected to make.
And then we need to think about who benefits and who should pay. We cannot keep loading the costs of the elderly onto the working population - especially when many elderly people are wealthy in terms of their assets and pensions.
The report suggests that an option could be to have a voluntary or opt-in funding system, where people have a choice to pay a specified amount to receive financial protection from the state.
Next, what are the options for enabling people to meet the costs they may end up paying? At this point it is important to note a development which will change the existing landscape, whether or not a new long term care insurance market emerges.
That is the introduction of a universal system of deferred payments for residential care to be introduced in 2015. This will mean that no-one will be forced to sell their house in their lifetime to pay for care.
The Care and Support Bill includes the powers to implement this policy in England. Some have put this commitment in the same camp as the cap - it's all too difficult and it won't happen.
I will stick my neck out and say it will. Labour originally introduced this policy but it wasn't universal because local authorities were not allowed to charge interest.
A cross-party consensus seems to have emerged. For financial advisors this means it will be important to weigh the benefits of taking advantage of the scheme against other options such as equity release.
For re-insurers, there may be opportunities to collaborate with local authorities to fund and manage the scheme. Local authorities would gain as the accounts would be off their books and not subject to large annual fluctuations.
The Government is also setting up another working group involving the financial services industry, local authorities and the care sector to support the development of a new information offer for care and support.
The working group will explore how the sector as a whole can contribute, and make links with pensions, benefits, wider services and specialist financial advice to ensure the information offer is comprehensive.
Finally, the Government will clarify the tax treatment of disability linked annuities. HMRC and the ABI will clarify the rules this September according to a recent Parliamentary question. We are in for an interesting journey.
Richard Walsh is a director and fellow of SAMI Consulting www.samiconsulting.co.uk
