After years of delay, the Government has published its plans on how they will help cap the amount of money you will pay should you go into care. And while the proposals (which are for England only) have attracted plenty of negative comment, they do at least enable people to put in place plans on how they might fund their future care. By Tony Watts OBE.

The last few weeks have given us plenty of rhetoric on the Government’s proposed new care cap, along with a good measure of spin – making it difficult to work out exactly who will benefit and by how much.

But first, the good news. Should the Government’s plans pass their perilous journey through Parliament as they stand, they do represent an improvement on the current mechanism for paying for care (either in the home or in a residential care setting), which are simply that anyone with assets valued at over £14,250 has to contribute towards their costs of care, and anyone with £23,250 in assets has to shoulder all of the costs (until they are reduced down to £14,250).

“Assets” include savings, investments and property, not least the family home… although caveats do allow you to retain the home until after your death, and for a close relative or dependent to remain there without it being sold over their head. Currently there is no cap on how much you can spend on care. With care homes typically charging £35,000 to £40,000 a year, it’s easy to see how swiftly the average person’s funds can be drained.

At present, anyone going into care and needing funds to pay for it can apply to have the sale of their home delayed, with the council footing the bill until the house is sold and the money reclaimed after they die.

Under the new plans, from October 2023, the maximum that anyone will have to pay for personal care over their lifetime will be capped at £86,000. Moreover, anyone with less than £100,000 worth of assets will also be eligible for some financial support from their local authority… a steep rise from £23,250… and no one with less than £20,000 in total will have to contribute at all.

So far so good…

The main complaint being levied at the plans is that they apply across the board, so that if someone has a £500,000 of assets, they will receive the same level of support as someone with £100,000. It is effectively regressive, hitting those less well-off relatively harder compared to the better heeled. That was not the original intent set out by Sir Andrew Dilnot when he first drew up proposals back in 2012, and this is the element that may well get tweaked if enough Tory MPs – particularly those in the Northern “red wall” seats – make their case that it could prove a vote loser in constituencies where house prices are much lower… (ie, the North).

The other caveat to flag up is that the £86,000 ceiling only applies to the cost of nursing and domiciliary care. The daily living cost element for those residing in a care home will be stripped out of the calculations and not count towards the lifetime cap of £86,000. “For simplicity,” reads the Government’s policy paper, “these costs will be set at a national, notional amount of £200 per week.”

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, summed it up well when she responded: “The £86,000 cap will undoubtedly help contain the amount people have to pay for care but the fact that this does not cover so called hotel costs means those in care and their families still need to battle hugely unpredictable costs on an ongoing basis. While a relatively short-term care need may be manageable, those with a long-term care need continue to face difficult times.”

Planning for the future

One of the major potential benefits of putting a cap in place (any cap!) is that it offers the possibility of companies in the financial services sector coming forwards with ways to mitigate or insure against the costs. These are early days, but already thinking caps are being donned: Tom Selby, head of retirement policy at the wealth platform AJ Bell, takes the position that the Government might want to incentivise people to save for future social care… for instance, by introducing an Isa specifically for saving for care, where withdrawals could only be tax-free if used to pay for care.

There are some very good reasons why someone might want to hedge against future care costs… not least because it gives certainty to families that they will not find themselves having to sell the house when the person goes into care or even after their death.

Using your LifePlan to do the calculations

Knowing the maximum total costs of future care and the daily living in a care home £200/week) does allow you to make some plans for the future, especially if you are keen to ensure your family has clarity about what your estate will be, or you’d prefer to ensure everything is provided for, for you and/or your partner, when the time comes.

Your RetireEasy LifePlan even allows you to try out different scenarios – including putting a specific investment aside that you can draw down. It can also be advantageous in some circumstances to look at dividing assets such as the house between yourself and your partner to limit future liabilities. Expert, independent legal and financial advice is always absolutely essential before making decisions like this.