The recent Government policy statement in response to the Dilnot Commission on the funding of care and support highlights problems when it comes to planning for care costs, Andy James explains.
A quarter of individuals will spend very little on care whilst 10% will have to face fees in excess of £100,000.
So, what do you do? Take a chance that you are going to be one of the lucky 25% or try to put funds aside to cover what could be a very large and open ended bill at some future date?
If you do put money aside and you turn out to be one of the lucky 25%, you have of course increased the size of your estate and then your heirs will face the potential of a 40% tax charge on money that you could have given them tax free in your lifetime, or spent enjoying your retirement - all in all not a great choice.
At least the potential capping of individual costs to the maximum of £75,000 from 2017 for those in England will put a top end on the figure. There will still be additional costs to meet over and above the cost of care should an individual enter a care home, however.
Furthermore, it may be unclear how the local authority will value the care you receive and how much you should contribute.
No doubt there will be some issues over what the local authority believes care should cost and what you end up paying for it. However there should be more clarity than is currently the case.
The raising of the threshold to £123,000 for means tested support for those entering a care home will also give some relief to those worried that virtually all their assets would disappear into a care costs black hole, although the level of support at the top end of this figure may end up being rather meagre.
I suspect that there will also be those happy in the knowledge that their property will not have to be sold but instead a debt can be placed against it by the local authority to cover the care fees. However, with interest due to be charged on this debt, I am not convinced that it will be beneficial to many.
If you enter a care home, in most cases it will be unlikely that you will return to your own home, so what do you do with it in the meantime? Leave it empty or rent it out? Neither option I suspect will be particularly attractive at that time of life.
You may find children willing to take on the family home but at the end of the day the care costs and interest will have to be paid from somewhere and, if there are no other assets, it may just be delaying the inevitable sale.
I feel that for the proposals to be a success, it will have to cause a general change in thinking by the general public whereby putting funds aside in earlier years, either directly or via some form of insurance, becomes the norm for ‘middle England'.
The questions therefore will be firstly, will this top end cap and the higher threshold for means testing persuade more people to consider putting funds aside to cover care costs and secondly, will the financial services industry come out with affordable products to assist with this type of planning?
Andy James is advice policy manager at Towry
