The care cap – the final insult

The public is deluded if they think the care cap means their worries are over says Teresa Hunter

The sad thing about headlines is that the general public believe them. I find it embarrassing being asked by elderly relatives, when their pension will be going up to £150 a week. It shouldn’t be my job to break the, to them, unwelcome news, that they were born some 20 years too early to qualify for new higher flat payments.

And so it is with the care cap. It hardly required recourse to the back of an envelope for most professionals to work out within minutes that, given the tortuous way accruals towards the cap would operate, claims that no one would pay more than £72,000 were laughable, if not insulting.

The average stay in care is two years, the cost of which will fit very comfortably beneath the £72,000 threshold, so prepare to meet your own costs. But the general public think their long-term care worries are over.

So it was helpful that the Institute and Faculty of Actuaries crunched the numbers, to confirm that only a few elderly people would live long enough in care to benefit from the cap. These would probably first spend £140,000 of their own money, with some suffering a higher load of up to £250,000.

So what has gone wrong, and will the new care cap clash with the pension reforms allowing people to take cash from their contracts? The answer is that for some it might.

A crucial part of the care reforms, which seemed to give comfort, was the lifting of the starting point at which you can claim state help. Currently if you have assets of more than £23,250 you get no help. While the increase to £118,500 was celebrated, for many it will make little difference as it includes the value of your home.  

On the other hand, nothing is as it seems when it comes to the elderly, and sensitivity will be required to protect any residual wealth. Some clients will be anxious to ensure they need not rely on the state for their care in retirement, while others will see whittling down their funds to below the means test a priority.

Many people who go into a home are extremely elderly, have already downsized and are left with meagre pensions. Cashing these in at the end of their lives will seem attractive.

Yet in doing so, they could be placing themselves unnecessarily beyond state support. Any cash will be immediately treated as an asset whereas only the income from money in a drawdown plan is currently included in the calculations. That could all change, but that is the regime at present, so great care is needed.

While some will cash up to provide an income, others will do so to give assets away and put them beyond reach of the local authority means test.

However, this will likely fall foul of the deliberate deprivation of assets rules, unless assets were given away well ahead of any obvious need.

In general, early disposals have much to recommend them, in that not only may they protect wealth against care bills, but they will also slash inheritance tax due on the estate.

The downside is this leaves you penniless and helpless. Relying on the love and generosity of your children and wider community has little to recommend it, as King Lear discovered to his cost.

Investment bonds might offer an escape hatch. While it lasts, some local authorities do not count those into the care means test, but a sudden rush into bonds could also run the risk of being caught by the deprivation of assets rule.

Personally, I have no intention of leaving control of my long-term care to the state, should I ever need to go into a home… which naturally I won’t.

Au Contraire…. I will see the cap as an excuse to make whoopy. After all you reach the cap quicker the more expensive your home, so you might as well enjoy the highest possible quality of life during your closing days.

Under a weird quirk of the rules, residents in the South East will reach the cap sooner than those in cheaper locations. The sooner the better I say…. for a much more civilised way of making the state pay.