It’s reasonable to suggest that the deep chasm between public funding of social care and the increasing needs of an ageing population looks set to widen to canyonesque proportions over the coming decades.
Whereas most people save towards a pension to provide for a comfortable retirement, it’s an alarming fact of life that only a small number are adequately prepared for potentially enormous care costs in their later years. Indeed, for some people with a protracted need for care, the bill can grow to eye-watering levels, despite the availability of (limited) state assistance.
Arrangements for those seeking help with care costs have undergone several revisions over the last 20 years as life expectancy has risen dramatically.
Most recently, from October 2023, the government announced reforms to the social care system in England which included the introduction of a limit of £86,000 to the lifetime cost of personal care. The new limit is known as the social care cap.
Initially scheduled to be introduced in October 2023, the date of implementing the new social care cap was later deferred until October 2025. Until then, current funding rules continue to apply. In other words, you will not be entitled to help with the cost of care from your local council if you have savings worth more than £23,250, known as the upper capital limit, a figure scheduled to rise to £100,000 from October 2025.
Nor will you be entitled to support if you own your own property, although this applies only if you're moving into a care home.
Should your assets be below £14,250, the local authority will pay for your care costs, though any income you enjoy will effectively act as a contribution towards your care fees. This lower capital limit (LCL) threshold will however also be increasing to £20,000, from the current £14,250.
At first glance, therefore, the social care cap of £86,000 appears a reasonable-sounding government undertaking to limit the amount of money people must pay towards their longer-term care. Indeed, you may deduce from this (as millions of people have) that once you’ve spent £86,000 of your own money, your care costs will become the responsibility of your local authority. In truth, however, some folks will have to pay considerably more than £86,000 to receive care.
Why is this? Ostensibly, it’s because not everything you spend on care will count towards the cap.
While the cost of personal care, including assistance with essential everyday activities such as washing, feeding or getting dressed are considered personal care costs, there are plenty of other expenses which are not included. For example, the costs of a room in a care home, as well as the charges levied for food, cleaning and heating do not count towards the cap as they’re deemed ‘hotel costs’, even though they usually account for a significant percentage of care home costs.
You need only spend a short time meandering across the internet to discover a wealth of responses from people to burgeoning later life care costs which, frankly, range from the naïve to the startling.
According to several post-pandemic surveys, including a ‘Prepare for Care’ paper published in February 2023 by the Association of British Insurers (ABI), an estimated 85% of UK adults have made no provision to cover the cost of care, even though the majority of people likely to require later life care must fund it themselves, at least to some degree.
Indeed, more than half of the people who participated in these surveys believe their state pension, currently a maximum of £ 203.85 a week (scheduled to rise to £221.17 from April 2024), is the most probable source of income for funding care costs. However, it’s worth noting that average weekly care home fees currently exceed £750; if nursing care is required, the cost surges well beyond £900pw.
As surveys have been published, so proposals have arrived in their wake. One ABI survey concluded with several thoughtful proposals, ranging from the creation of a ‘Care ISA’, to tax relief on pension income which could be used to pay for care costs. Most proposals, though sensible, require legislation to become law before they could be implemented, although one option exists already.
Homeowners aged 55 and over may wish to consider releasing a proportion of equity from their home, effectively to ‘insure’ against future care costs. “With no government intervention required through tax incentives, it may be possible that this proposal could be offered…now,” said the ABI.
According to the latest annual figures, homeowners already release more than £40 million from their homes to pay for care costs, a level which suggests that plenty of people have been astute enough to recognise a potential future problem and done something about it.
Equity release is not a panacea, nor is it the only option for funding care costs, but the process already exists; in other words, homeowners are not reliant upon fresh legislation to release a tax-free lump sum from their homes and use the funds however they wish.
Before taking matters any further, however, it would be prudent to speak with a qualified equity release adviser who can explain the advantages – and possible pitfalls – associated with the process of releasing equity from the home.
Additionally, a qualified care fees expert should be engaged whereby a course of action using the two financial advisers can work on a potential care plan between them, after exploring whatever government assistance is on hand.
The burgeoning cost of care, whether administered at home or in a residential facility, could no longer be described as the ‘elephant in the room’; the giant animal’s presence has been acknowledged.
As a consequence, governments around the world accept that as their domestic populations age, the corresponding cost of senior healthcare will invariably rise, whereas the level of available state aid is finite. Given this knotty conundrum, it seems likely that, in the UK at least, the importance of equity release as a source of possible funding for care will continue to grow.