Post No62...What is the governments 'Social Care Cap' and how does it work?

Introduction

In the past, the government has made noises about making changes to the social care sector, including finding new ways to support people to pay for their care. The problem is that these 'new policies' are seldom fully explained, or they are explained very vaguely, leaving them open to incorrect interpretation.

This post has therefore been written by Nicky Cave, Managing Director at Eldercare, to explain how the Care Cap works and how you can explore potential alternatives.

Can anything be done to prevent money running out, when paying for a care home?

The start of the new financial year often coincides with care homes increasing their fees. This can sometimes cause concern amongst families in respect of how long their loved one’s funds might last, especially during the current cost-of-living crisis.

Isn’t there a limit to what has to be spent on care fees?

The ‘Lifetime Cap on Care Costs’ that the Government announced in September 2021 has not yet come into being and there is doubt that it ever will do, so this is of little reassurance to those families.

It might be helpful to understand exactly how the Cap would work for you (or your loved one) in practice, because the reality is it is unlikely to be a true ‘Cap on Care Costs’:

·        Regardless of the actual fees payable at your chosen care home, only your 'Independent Personal Budget’ (IPB), which the Local Authority sets after assessing your needs, would be used in calculating how much you spend on care.

In other words, if your care fees are £1,300 per week, but the Local Authority typically only pay £600 per week for a funded individual, only £600 per week would count towards the Cap. That’s £700 per week that wouldn’t count towards the Cap (referred to as the ‘top-up costs’).

·        But, to make things worse, an assumption will be made that £200 of the Independent Personal Budget would be for ‘hotel/daily living costs’, not care, and so this wouldn’t count towards the Cap either.

·  In summary, you would only have £400 per week (in this example) count towards the Cap which means it would take 215 weeks (4.1 years from October 2025) to reach the £86,000 Cap. Even at that point, if you still have assets above the Local Authority capital limit, you would still have to pay the top-up costs of £700 per week and the ‘hotel’ costs of £200 per week.

·   You would, however, be eligible to receive a Direct Payment equal to the amount that was counting towards your Cap i.e. £400 per week (in this example) from about November 2029. The only ‘unknown’ at this stage (apart from whether the Cap will ever be introduced!) is the amount the Local Authority would set as your IPB.  If they were to set it at £700, rather than £600, then you would clearly reach the Cap a little sooner, as £500 will clock up each week not £400.  It would, however, still take over 3 years (from October 2025).

·        If the ‘Care Cap Clock’ does come to be, and starts ticking from October 2025, it will not be retrospective, so nothing spent on care costs between then and now will count towards the £86,000 Cap. It would be your responsibility, prior to October 2025, to contact your Local Authority and ask them to assess you for eligibility for opening a Care Cap Account. 

So, all funds may have to be spent on care fees?

Not necessarily. There is an alternative that approximately 85% of self-funders never get to hear about and yet, if affordable and appropriate, could fund care fees for life, ring-fencing the remaining capital.

We are talking about a regulated financial product called a Care Fees Annuity.

Purchasing a Care Fees Annuity (sometimes referred to as an ‘immediate or deferred needs annuity’) is a genuine alternative to meeting care costs directly from capital or investments. These are policies which have been specifically designed to take into account the age and state of health of an elderly person who requires personal or nursing care.

How do they work?

Care Fees Annuities are purchased from an Insurance Company with a one-off lump sum payment (usually from your investments, savings or property sale proceeds), which is non-refundable unless some form of capital protection is included.

The income paid out by the Insurance Company is then paid for the rest of your life, leaving your remaining capital protected from future care costs. The income is tax-free as long as it is paid directly to Care Provider which is regulated by the Care Quality Commission (which almost all Care Homes are).

This type of policy offers a guaranteed method of meeting the fees for life, although the risk they carry is that capital could be lost if you do not need care for as long as the Insurance Company had predicted, unless you choose to add some level of capital protection or buy the plan with a deferred start date.

Any money spent on the Care Fees Annuity will immediately reduce your estate for the purposes of any Inheritance Tax calculation. The amount of income paid out each year can remain the same or it can increase by a fixed percentage, or even by the rate of inflation – you choose. If you move care homes, the plan simply moves with you.

Where can I find out more about a Care Fees Annuity?

You cannot get quotes directly from the Insurance Companies and would need to go through an independent, preferably SOLLA Accredited, Care Funding Specialist such as Eldercare.

If you wanted to get an indication of likely cost of a policy, they have developed an easy to use ‘ready reckoner’ which requires you to input just 3 pieces of information and it will give you an average likely cost based on underwritten quotes obtained for other people of the same age. It is just an average and full underwriting would need to be done to get a bespoke price, but Eldercare can arrange this free of charge and with no obligation.

 To contact Eldercare directly for advice, please call 0800 082 1155 or email advice@eldercaregroup.co.uk.

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