‘Dilnot’ Commission proposals for reform of Long Term Care

September 28th, 2011

One of the often forgotten elements of an individual’s financial plan is making sure that they have adequate financial provision should they require residential care during old age – Unfortunately there are now few insurance companies offering financial products to assist with this type of planning which presents a further obstacle for those looking to plan ahead to meet these potential costs.  In fact the very last long term care savings policy (know as a ‘pre-funded’ plan) was shelved in July 2010 with the insurer citing that “No-one wants to pay for a product they may never use”.

Nevertheless, in reality many people are likely to be faced with having to pay for any residential care they need in later life.  Even for individuals who receive Local Authority funding (either in full or part) there are still financial considerations, for example:-

•    Would you want to be able to choose which care home you live in (as Local Authorities set maximum amounts they are willing to pay)?
•    Would you be willing to accept that if your money ‘ran out’ you may need to move to a cheaper care home?
•    If assets may be required to pay for residential care how could you take steps to preserve an inheritance for your loved ones?

It is therefore important to have an understanding of how the system works.  The aim of this article is to cover (broadly) how the means-testing system currently operates and to outline recommendations recently announced for reform.

The current position

Currently, the Charging for Residential Accommodation Guidelines (CRAG) set the framework for how Local Authorities should assess an individual’s ability to pay for or towards their residential care fees.

Generally speaking anyone with individual assets (or a share of joint assets) worth over £23,250 will not receive any Local Authority assistance towards the cost of residential care (although certain assets may be disregarded for this assessment in particular circumstances – for example the value of your home will be disregarded if your spouse or partner will still be living there)

For those with assets between £14,250 and  £23,250 Local Authorities calculate a weekly “tariff income” of £1 for every complete £250 (or part of £250) of capital between these thresholds.  So, for example, an individual with assets of £23,000 would be deemed to have tariff income of £35 per week.   This is then added to actual income from other sources (e.g. – pension income) and the Local Authority will make up any shortfall between this figure and the cost of residential care.

When assessing your assets and income the local council should look only at your income and assets, or your share of them, not the income of your partner or other relatives.

It is worth pointing out that  if you deliberately deprive yourself of assets in order to avoid paying the charge the local authority can still treat you as if you own them, for example if you give away assets to your children to avoid them being taken into account in the Local Authority’s assessment.

With the average cost of a care home in 2010 being £35,984* it is easy to see how assets built up over a lifetime can be swallowed up quickly.

*(Source: Laing & Buisson)

‘Dilnot’ Commission Proposals

On 4th July the Commission on Funding of Care and Support presented its findings to the Government in a report entitled “Fairer Care Funding”.   The suggestions made in the report were perhaps the most radical changes suggested to date for a shake up of how we provide and fund care for the elderly in society. The Commission was originally set up in July 2010 and was tasked with suggesting a fair and sustainable system for adult social care in England.

The main recommendations in the report were:-

•    There should be a cap on an individuals total lifetime contributions to the cost of their care – The suggestion was that this should be between £25,000 and £50,000 with a figure of £35,000 recommended by the Commission

•    The means-testing threshold should be increased from £23,250 to £100,000

•    National eligibility criteria and ‘portable’ assessments should be introduced for greater consistency (as, despite the CRAG guidelines, there are still inconsistencies between individual Local Authorities)

•    All those who enter adulthood with a care and support need should be eligible for free state support immediately rather than being subjected to a means test.

The Commission estimates that its recommendations would cost in the region of £1.7 billon per year to implement and therefore there is no guarantee at this stage that any of the above proposals will be accepted by the Government.   If the recommendations were implemented, however, it would mean that no-one would lose more than 30% of their assets and would be a marked departure from the way the state currently charges for residential care.

The other hope is that reform along the lines of the Commission’s recommendations would enable insurance companies to finally offer affordable long term care insurance products. Early indications are that the Government are unlikely to take on board the proposals in full so we still await what (if any) reforms may take place.

Of course no-one wishing to plan for this potential scenario should stand still as, even if the Commissions model is adopted, many people would find themselves above the means testing threshold and need to make some provision for their own care.

Your Financial Adviser can help you put a plan into action:-  Whether you are looking to build a lump sum in order to provide for possible future care costs or looking to generate an immediate income stream for care required now.