On the 7th September 2021 Boris Johnson made a statement on the long-awaited changes to paying for Long Term Care and funding for the NHS.
He also announced an increase in National Insurance for employers and employees of 1.25% (2.5% combined), along with an increase in dividend taxation of 1.25% to pay for the proposed additional costs.
The existing rules on paying for care are, in simplistic terms, if you have assets (savings and property) more than £23,250 you will have to “Self-fund” your care costs. If you have less than this, the Local Authority will help pay towards the cost of care. These rules are different in Wales and Scotland.
If you are single and have less than £23,250 in savings, but own a property that is worth more than this, there is the 12-week property disregard, when the Local Authority will cover the first 12 weeks of permanent care. If the property is not sold, then a deferred payment arrangement can be applied for, which incurs various costs and interest on the debt.
The “new rules” announced on 7th September, effective from October 2023, state that no one will pay more than £86,000 towards their care costs, also, anyone with assets less than £20,000 will not have to contribute to the cost of care, and the upper capital limit is increased to £100,000. The 12-week property disregard will remain, as will the deferred payment arrangement.
On the face of it, a seismic change to the rules with the capital allowance limit increased by over 4 times. However, this is only on the face of it, the actual rules are:
- The cap is only on the amount used to pay for care, it does not cover the “hotel” costs – food, accommodation etc. The Government, as of yet, have not announced any cap on this – although the figures of £12,000 per annum or £24,000 per annum have been mentioned in the annual limit on personal contributions.
- If a person’s assets are between £20,000 and £100,000 their Local Authority may fund some of their care. Although people are expected to pay for the cost of their care from their income, but if that is not sufficient, they will contribute no more than 20% of their chargeable assets per year.
- If a person chooses to top up their care costs these do not count towards the cap.
- If a person’s capital assets fall below £100,000 then they may be eligible to receive some financial support.
- If a person’s assets fall below £20,000 they will not have to use capital assets to pay for care, but may still need to contribute from income.
- The Local Authority will need to carry out an assessment to ascertain whether a person is eligible to receive help, taking into account capital assets and income, same as done now.
The new £86,000 cap is limited to the care element only (only those who are extremely frail or cannot feed or clothe themselves will qualify) and not accommodation or food costs, therefore a person could still well be paying a great deal towards the cost of residential care over their lifetime (£200,000+). It must also be noted that these new rules will only apply to those entering care from October 2023 onwards.
The average cost of residential homes in the UK is c£40,000 per annum, the average cost of actual care (not accommodation food etc) is c£12,000 to £15,000, it will, therefore, take many years to reach the so called “care cap”.
In many cases the cap will not be reached, as over half of those moved into care die in the first 12 months and three quarters do not spend 3 years in care. In addition over half of the requests for help in paying for care are rejected by the Local Authorities. (source Nick Triggle, bbc.co.ukhealthnews).
The increase in taxation to pay for these reforms will, if you follow the money, not be going to fund social care, instead being paid to the NHS to help clear backlogs within the health system. In fact, over 80% of the revenue raised from the tax increases will be paid to the NHS in tax years 2022/23 and 2023/24. The care providers, the Local Authorities will only receive £5.4 billion of the £36bn raised in additional taxes in the first 3 years from 2022-2025.
The Government hope is that from 2024/25 onwards, the extra tax will gradually move from post-pandemic NHS spending to meet the growing costs of the new social care funding regime. More than a few commentators have highlighted that past performance suggests it will be next to impossible to take money away from the NHS.
The one positive point to note, is that, now there is a “care cap” insurance companies may seek to introduce protection plans or additions to Immediate Care Needs Annuities in order to cover the fixed amount of £86,000. This sort of innovation is not a certainty, but it could in future give rise to some options for those clients with the desire, and the means to provide for future care needs.
The social care changes are set to take place from October 2023.
Ian Evans Dip PFS
Fiveways Financial Planning - Head of Later Life Advice
Society of Later Life Advisors (SOLLA) – Advisory Board Member
SOLLA – South-West Co-ordinator.