Time to engage

“All we need is for a clear government statement as to whether they are going to implement Dilnot and we’ll all be able to get on with planning the future of care funding.” This has been a much-voiced sentiment since the recommendations ?of the Dilnot Commission were published in 2011.

Academics and research units have produced many projections as to what the care funding landscape would look like in the post-Dilnot world. A ?common consensus has been that what ?is needed most is clarity so that the public can understand their obligations and responsibilities, local authorities can make financial projections and the financial services sector can finally provide a range of appropriate products to fill the current void.

The announcement has now been made and we have the new financial framework. What we don’t have is clarity. Most worryingly, we have popular media coverage of the headline figures that leads the consumer to believe they ?know what their care will cost.

The figures sound as though the ?new care horizon will be kinder to ?those who have saved for their retirement with more money left for them to use to enhance their retirement and to pass on to their children should they choose to do so. The reality is likely to be very different.

The Department of Health has published a policy document setting out further detail about what the new system will mean and how it may be legislated for. The policy statement confirms that the government will set a £75,000 ?cap on the costs an individual has to ?pay to meet their eligible care and support needs. This will apply to adults resident in England.

In addition to the implementation of a ‘cap’ on the maximum amount ?that an individual will have to spend on their residential care needs, the government will raise the means-test threshold to a £123,000 upper and a £17,500 lower capital limit, and ?about £12,000 annual contribution to general living costs.

These changes are scheduled to take effect from April 2017 and the figures are based on the latest HMT GDP deflator figures and assumes a long-term care cost inflation rate of 2.5 per cent.

In reality, these headline figures disguise a huge degree of complexity about the potential liability of the individual facing funding the costs of their residential care.

The cap

Setting a maximum that an individual will need to spend before the state will intervene is very much in line with the Dilnot Commission’s proposals. However, the approximate figure mooted then was £35,000 or maybe £50,000. This new limit of £75,000 is substantially in ?excess of these figures and will bring a lot more of Middle England’s assets into ?the funding net.

The benefit of setting a limit is ?that it should, in theory, allow the private sector to step into the market and introduce financial products that might meet this. Given the figures involved, it will be a challenge.

Currently, the financial services sector has shown little appetite to re-enter the pre-funded market.

The objective of implementing a cap was seen as mitigating the problem of “catastrophic loss”, that is an open-ended financial liability to care funding, which meant that living longer could easily become a huge financial burden rather than a pleasure. In this regard, it can be seen to be successful.

However, the hidden difficulty in this cap is in determining when the ‘financial clock’ will start to run.

An individual expecting to spend up to the maximum and then hand over ongoing responsibility to the local authority will find reality very different.

The cap is calculated based on the weekly amount the local authority is prepared to pay for the resident’s eligible care costs if they were providing it. This is not the same as the actual cost of the care, which will vary from home to home and between geographical areas.

A person’s ‘eligible’ needs for care and support are those needs that meet the national minimum threshold, which is yet to be specified in regulations.

Care costs

Importantly, the emphasis is on the words ‘care costs’. Residential care includes within it an element of accommodation costs. The cap does not include this ?cost as it is argued that such costs would be incurred in everyday living. In addition, some individuals may prefer a care home with a higher standard of amenities and comfort.

The new funding model requires ?the individual to fund these general living costs themselves and sets the ?level at £12,000 per annum.

The Department of Health review justifies this by an analogy with domiciliary care and sees it as a contribution towards general living costs referencing that in domiciliary care, people remain responsible for non-care expenses, such as utilities and rent.

It may well be the case that some care homes charge a higher figure than this, then that will only be able to be met by those who have capital above the £123,000 threshold as this would allow them to ‘top up’ their own costs.

Means-test threshold

The means-test threshold is set to increase to an upper limit of £123,000 and a lower limit of £17,000. Charity FirstStop has produced a model for the cost of care to the individual under the new funding regime.

Once your capital is depleted to £123,000, the local authority will assist with the funding of your £75,000 cap.

The tariff income you would have to pay between the lower threshold of £17,000 and the higher of £123,000 is £1 for each £250. Therefore, on £123,000 your tariff income would be £424 per week.

Plus, your accommodation costs of £230.77 per week (£12,000 per annum) equates to £654.77 per week or £34,048 per annum.

If the care home costs the average that the commission quotes as £28,600 per annum, which, inflated to 2017 prices, becomes £35,178 per annum then the local authority contribution would be just £1,130 per annum (£21.73 per week).

So, FirstStop calculates that if you haven’t reached your £75,000 cap, it is not worth seeking local authority support until your £123,000 has diminished to £105,500.

A further funding model has been produced by financial services company Partnership. The chart (above) shows its projections for the impact of the new care cap at £75,000.

It indicates that with care home fees at £800 per week, state help would not be available until into year eight of a resident’s stay. They estimate that the average stay for self-funders in a care home is four years with only one in eight living for more than eight years.

What is clear is that there is a real disparity between the headline figures and the reality for Middle England. The new financial model will need considerable drafting in legislative stages and the support of detailed regulations ?to sit behind the headlines if it is going to be effective.

It is important, therefore, that during the interim between implementation and the announcement we all actively advise our clients and spread the word where possible that while much good is achieved by imposing these limits, there is, and will continue to be, considerable cost to individuals should they need to fund their care.

Local authorities

The framework for care funding will also fundamentally change as individuals will have to actively engage with their independent adviser in this brave new world. Currently, this is not the case. It is estimated that fewer than 20 per cent of self-funders engage with their local authority. Some of these will be those people who are classed as ‘self-funders’ because their fees are ‘topped up’ in some way.

There needs to be a shift in behavioural changes and attitudes by both the individual and the public sector to encompass these changes. Individuals do not seem to see local authorities as the natural home of advice and information on care funding. Similarly, the public sector has not historically felt comfortable with discussing the financial aspects of care.

Figures from healthcare market intelligence providers Laing & Buisson for 2012/2013 indicate that the proportion of self-funders in residential care is 57 per cent. Of these, 175,000 are fully funded and 56,000 are topping up – the remainder were funded by the local authority or under the NHS continuing care programme.

Within the new system, everyone will need to engage with their local authority to some extent for the ‘financial clock’ to start ticking. The new regulations and processes will be drafted later but it is not envisaged that individuals will simply be able to contact their local authority when their capital reaches the threshold limits.

Furthermore, with the gap between the top end and the lower limit now being much greater, there will be more individuals being asked to contribute ‘tariff income’. This is notional capital of £1 for every £250 of capital within the two funding levels. Many feel that this is an unrealistic assessment of the notional value of capital particularly in the current economic climate and it may therefore be reviewed before implementation.

New bill

In addition to the new funding regime, the draft care and support bill includes a universal deferred payment scheme. Unlike the current system, this is likely to be mandatory in implementation and, for the first time to allow local authorities to charge interest on the loan from inception. This is a radical change as it will place the local authority in the position of, in effect, offering mortgages.

There is some disquiet from the financial services sector, who understandably feel the underlying regulations that will drive this should clearly ensure access to independent financial advice. It is argued that the local authorities should commission ?this service rather than provide ?it themselves.

It would therefore appear that one of the few clear aspects of the new regime is the complete lack of clarity that is there for those who have to make the decisions about financing care both at a time of crisis, when entering care or when planning ahead to factor these costs into their financial planning. The need for access to good quality information and advice has never been more necessary.

Fortunately, the draft bill includes provisions that will require local authorities to provide access to information and advice. Currently some local authorities do this well and some pay lip service to doing so.

The Society of Later Life Advisers (SOLLA) has engaged with some local authorities that are already providing ?this service to their community by working collaboratively with SOLLA members, care providers and local branches of charities, such as Age UK and FirstStop, to ensure an integrated pathway of advice and information for their community.

All professional advisers will appreciate and recognise that timely access to good quality information and advice can transform the outcome for older people, their families and carers.

More individuals will come into contact with their local authorities, who will play a key role in providing the gateway to funding care and ensuring positive outcomes.

Tish Hanifan is a barrister and joint chair of the Society of Later Life Advisers