Long term care – selling the house may still be necessary

13th February 2013

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The announcement of a cap of £75,000 on the amount people have to pay towards the cost of their long-term care tackles a vital and emotive issue – but is this all smoke and mirrors, failing to meet the scale of the problem facing society? Financial journalist Harriet Meyer considers the issues.

Jeremy Hunt, the Health Secretary, told MPs of the changes this week, which are partly to be funded by extending the freeze on the inheritance tax threshold, which stands at £325,000 or £650,00 for couples, by three years from 2015, and the introduction of the flat rate pension.

Hunt also announced the raising of the means-testing limit when it comes to who pays for care from £23,250 to £123,000 in England, although home nations have slightly different approaches. Taken together, he says the measures – to come into effect in April 2017 – would benefit about 100,000 people annually who would not receive support under the current system.

At present, about one in 10 people have care costs of more than £100,000 in old age, while one in five pay nothing at all.

But while experts say a cap against spiraling and limitless care costs is welcome, the changes aren’t as generous as they might appear.

Is the cap enough to stop home sales?

The cap is more than double the £35,000 recommended two years ago by a commission headed by economist Andrew Dilnot.

Mr Dilnot told the BBC’s Today Programme that it was a shame the cap had been set so high. However, he added it would mean that pensioners no longer had to be ‘terrified’ of the consequences of needing care. “The cap that is being proposed is £75,000, we think in 2017 prices. That’s the equivalent of £61,000 in our terms, so it is higher than we would have wanted.”

Thinktank Demos said about 120,000 pensioners a year would lose out because of ministers’ decision not to stick to Dilnot’s preferred cap level. Hunt’s plans would benefit 16% of over-65s, compared with 37% who would have gained from a £35,000 cap.

Claudia Wood, deputy director, said the £75,000 level was “unambitious, miserly and will do little to solve one of the most vital social problems facing our generation”.

Meanwhile, campaign groups said the system remains complex, with greater clarity needed on the reforms, and warned substantial numbers would still be forced into selling their homes. According to Age UK, around 40,000 homes are sold a year at present to help fund the cost of long-term care.

Ruth Isden, public services programme manager at Age UK, said: “People with assets by and large will continue to contribute to the cost of care, although the changes will see a slower burn rate when it comes to using these up.

“However, selling the house will still be the best way for many to fund long-term care.”

For example, if an elderly person lives alone in a home worth £150,000 and has £50,000 of savings, they won’t be eligible for help towards the cost of long-term care under means testing, and will contribute up to the value of the cap.

Isden says: “It’s up to them how they do this – they could choose to dip into the value of the house, or defer the remaining £25,000 payment and hold onto their house during their lifetime – enabling the Local Authority to reclaim this cost from their estate when they die,” she said.

Given few elderly people will have savings outside the value of their home of £75,000 or over, many will be forced into a tough decision. Either sell their home now, or see the value of their estate to be left to loved ones when they die deteriorate.

Stephen Burke, director of United for All Ages, which campaigns on inter-generational issues, said many older people and their families would still have to sell their homes to pay care home bills “whether it’s in their lifetime or after the older person has died”.

However, the value of a house cannot be sold from underneath a surviving partner, and isn’t taken into consideration when calculating assets when one partner goes into a residential home.

The reforms were also unpopular with the National Pensioners Convention (NPC). It them as “about as credible as a Findus lasagne”, reports the Guardian. General secretary Dot Gibson, said: “Setting a lifetime cap on care costs of £75,000 will help just 10% of those needing care, whilst the majority will be left to struggle on with a third-rate service.”

What will the £75,000 cap cover?

The portion paid for by the £75,000 cap simply deals with personal care — help with washing, eating and dressing. So the cap does not cover hotel costs for living in a residential home or general living expenses. However, a separate annual ceiling, under which the state will pay if those costs go above about £12,000 a year, will be announced by Mr Hunt on Monday.

Helen Kanolik, IFA at HelenK Financial Advice, says: “This cap might pay for care for three to four years, so those who live longer in care could still have financial problems – and these changes won’t help anyone who is currently receiving care, or who goes into care in the next year or two.”

Isden says: “There is an argument that by introducing a cap the reforms are protecting people from losing everything, so balancing out the inheritance tax changes – as they no longer risk facing seeing all money disappear in care costs before they get to that point.”

However, the policy is still using ‘death tax’ to help fund long-term care reform, and serves as a reminder that the chancellor failed to stick to his promise that he would raise the IHT threshold to £1m.

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