With increased life expectancy, it is predicted that the number of people needing care in later life will increase by 30% to 1.1million by the year 2025.
Unsurprisingly the cost of care is also set to increase from the current average of £26,000 per year to a predicted £33,000. The burden on the UK economy – and hence on a decreasing proportion of taxpayers – is set to be prohibitive.
And yet… Is it fair that someone who has worked and paid taxes all their life should then have to sell their home to fund the cost of long term care?
The Government has come up with 3 recommendations:
1) Introduce a cap on overall care costs, so there is a limit on the total amount that anyone can pay in his or her lifetime. The proposal is to cap the cost of care at £75,000 during an individual’s lifetime.
The small print: The cap does not include the cost of accommodation – it is the cost of care only. So if, for example, someone was paying £700 per week for long term care, made up of £400 per week residential costs and £300 per week care costs, only the £300 would count towards the cap.
2) Increase the means-tested threshold. At the moment anyone with assets in excess of £23,250 must pay towards the cost of their care. The Government proposes to increase this to £123,000. However, if your assets exceed this figure then you are not eligible for any state help until you have exceeded your overall care costs cap of £75,000, mentioned above.
(More small print – for those people needing care at home – a substantial number – the threshold will stay at £23,250.)
3) No-one will now need to sell their home to pay for the cost of care. The proposal is to introduce a ‘universal deferred payment’ scheme in 2015, which will allow people to borrow against the value of their home with the estate then paying back the loan (plus as yet undecided interest) on death.
In the main these changes will be introduced in 2017.
What do they mean for your financial planning?
By and large, the changes are to be welcomed. The cap on costs was essential. Likewise the rise in the threshold – but £123,000 is only equal to the cost of a very small home, so we suspect that this move may not make a lot of practical difference.
If you want to choose the quality of your long term care, and want to be certain that you will pass on as much of your estate as possible to your beneficiaries, then proper financial and estate planning remains essential.
In fact read more about the benefits of trusts and estate planning in another of our articles this month.