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Tories social care cost proposals get mixed reaction

18 May 2017

In its manifesto the Conservative Party outlined its plans to tackle the social care crisis. These policies include increasing the threshold for free social care from £23,250 to £100,000. It also said it would extend the deferred payment plan to those receiving care at home.

The scheme, currently available to those who decide to go into a care home, involves signing a legal agreement with the council, saying that care costs can be delayed, but will be repaid when the home is sold or after death.

Commenting on the plans Rachael Griffin, tax and financial planning expert at Old Mutual Wealth said the Manifesto has “created a measure, which fails to tackle one of the major problems and worse still it is inconsistent with other new policies.

“One of the sticking points with care costs is the swift rate at which they can escalate, leaving elderly people without a sense of control as they funnel substantial parts of their estate into a bottomless pit of care costs. The government has created a funding floor, meaning people will have to spend the majority of their wealth to fund care but it will stop at a certain point. What is really needed is a funding ceiling, where people only spend up to a certain amount.

“With multifaceted issues several policies are needed.”

She suggested that the government could have also considered using pension pots and allowed people to channel their funds to care providers or into products such as care annuities tax free.

She added that the new policy clashes with the Residence Nil Rate Band (RNRB), which came in from April.

“The basic principle of the RNRB is that a family home can be passed on to direct descendants free of inheritance tax. The allowance came after the policymakers recognised IHT bills were surging as property prices went through the roof and many beneficiaries who wanted to keep the family home faced either getting a mortgage or selling. In effect this social care policy will replace that IHT bill with a care bill and mean beneficiaries will again have to consider either getting a mortgage or selling.”

Steven Cameron, pensions director at Aegon said with long term funding of social care one of the UK’s “most pressing challenges”, the commitment to immediate increases in funding would be welcomed. “But longer term, we urgently need a clear individual / state ‘deal’ which sets out what the state will provide and how this will be funded. We support Labour’s calls to come to cross-party agreement here.

“However, we also need to incentivise individuals to save for their share of possible long term care costs in older age. We believe individuals are more likely to include social care funding in their pension savings. Current rules already limit tax beneficial pension funds to £1m, and any further caps on pension contributions could conflict with the need to encourage greater personal provision for long term care as well as ‘healthy’ retirement.”

Stuart Wilson at equity release lender, more 2 life, added that this was a “keenly-observed issue among voters, as for many owner-occupiers their home is the largest asset on their ‘personal balance sheet’ and they may well envisage downsizing to pay for care or passing on their property to their kids.” As such, he said, it could throw a brighter spotlight on equity release.

“With our ageing population due to incur significant long-term care costs, we may well see more and more property wealth being accessed to fund retirement outcomes,” he said.

“Equity release enables people to stay in their home by using the funding to pay for home care or adapting the home for their needs, which many would choose over going into a nursing home.

“This policy will certainly raise the profile of equity release and how it can be used to help with care costs into the spotlight. It has the potential to be another huge growth driver for the equity release industry.”

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