Following Sir Andrew Dilnot’s 2011 review of social care funding, the government agreed to set a cap on an individual’s lifetime costs at £72,000 (higher than the £35,000 recommended by Dilnot), due to take effect in 2016. The means-testing threshold for public support is also being raised to £118,000 (including property).
But in a report published today, the IFoA calculated that only around 8% of men and 15% of women – those facing the most ‘catastrophic’ care costs – were likely to benefit from the cap. It would also not offset or replace savings as a key means of funding care.
A pensioner in London entering a residential care home aged 85 could hit the cap in around four years, spending about £117,000 before reaching the limit. In the West Midlands, however, a pensioner would have to spend around £170,000 over seven years before reaching the cap.
Report author Thomas Kenny, 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 care cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.’
The IFoA recommends that some regulatory and tax changes would help develop the use of pensions for long-term care provision. It also suggests that good information and advice are needed to combat diverse care needs and complex cost structures.
Kenny continued: ‘We also found that there is no silver bullet – no one product 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 tax incentives, could help people plan ahead, including a new Pension Care Fund (PCF).’
The PCF would be a ring fenced long-term care savings fund that would sit within the framework of a defined contribution pension scheme.
Savings would be treated like a pension for tax purposes 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.
A Department of Health spokesman 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.’
