Government campaign needed to raise awareness of long term care costs

25 Oct 2013 | 11:44 am | 3 min. read

Government commitment to a national campaign to significantly raise public awareness that people will have to pay towards their social care costs after 2016 is needed before the financial services industry is prepared to invest time and effort in creating financial products for the funding of social care, warns lawyers at Pinsent Masons.

Earlier this year the Government announced that, from April 2016, a cap will be introduced limiting the costs that people will have to pay to meet their eligible care needs.  This cap will be set at £72,000.  Financial support will be provided to people to help them with care costs if they satisfy a financial assessment undertaken by local authorities.   The means test will be set at £118,000 including the value of a person's home or £27,000 if the home is not counted in.  These low levels are likely to be easily exceeded by the majority of people, reflecting that the support is only being targeted at those who need it most.       

The proposed reforms mean people will have more certainty to be able to plan their finances to meet their future care costs and not have to bear the risk of unlimited care costs as is the case today which can be catastrophic and has led to the sale of people's homes.   However, with the means test set so low and the fact that living costs will still be the responsibility of people in care means people will have to find the funds to pay for these costs either from their savings, insurance, pensions or possibly look to other family members for funding.  The Department of Health is consulting on the funding reforms and in particular is calling on the financial services industry to develop solutions for people at all ages and levels of wealth. 

To gauge the views and concerns across the financial services industry interested in designing products for the social care market, Pinsent Masons hosted a symposium earlier this month and conducted a survey of attendees involved in the advance planning for funding social care costs. Respondents included key individuals in the care community, local authorities, actuaries, financial advisers, banks and of course, insurance, pensions and savings product providers. 

Nearly all the respondents to the survey believe that the Government raising awareness and making information more widely available about the social care system are the most important steps needed to build a market for social care in order for the financial services industry to feel there is a need to create new products.  Despite these two major hurdles a significant majority (68%) of respondents believe that there will be a viable market for financial services products providing solutions to the self-funding of care costs within the next five years.  Respondents were also asked whether local authorities should refer people to independent financial advisers about their care cost options, just over half agreed they should. 71% agreed that independent financial advice should be sought before entering into deferred payment agreements and almost all respondents (93%) thought the deferred payment scheme should be subject to the consumer protection of the FCA.    

The consensus amongst respondents is that pensioners are relying on housing and potentially equity release products in order to pay for care cost in the next five years although nearly a third of those surveyed indicated an appetite for some kind of pre-funded insurance product.   

Bruno Geiringer, a partner at Pinsent Masons involved in advising life insurance and wealth management clients, commented:

"Figures show and people can see for themselves today that more people are going to live longer and so there is going to be an increase in the need for care, whether care is in the home or in a residential or nursing home.  Although care costs are increasing and it is impossible to know early in one's life whether care of some sort will be needed, some people will want to plan for that eventuality.  The questions are how many will want to save and how much do they need?  I'm convinced that at some time in the future, planning for care costs will be talked about in the same way as pensions are today.  If so and a market for financial products develops that both encourage people to take a long term view and provide peace of mind that the money will be there in years to come, then this could become an exciting new development.  One only hopes that successive Governments stick to a consistent policy about social care and outcomes are not chopped and changed as frequently as pensions have been in recent years."     


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