Changes to Care Funding – What They Mean for You

Chartered Financial Planner Jonathan Warhurst explains what the changes to care fees actually mean for you.

Whilst much of the media attention has focused on the rise in National Insurance and the headline figure of long term care fees being capped at £86,000, it is necessary to lift the lid and read the small print on what this actually means when it comes to paying for care.

Firstly, it’s important to understand what is and what isn’t covered by the cap. This is explained in the government’s ‘Build Back Better’[1] document:

From October 2023, the Government will introduce a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime. This will be a seismic change in the way we pay for care and will deliver a core recommendation of the independent Dilnot Commission. It will be implemented using legislation already in place under the 2014 Care Act, which introduces the independent Dilnot Commission’s social care charging reform. As a result of this new cap, people will no longer face unpredictable or unlimited care costs.

The specific mention of ‘personal care’ is telling and means that other costs associated with living in a care home, often referred to as ‘hotel costs’ such as food, accommodation and cleaning, will fall outside of the cap. It is also worth highlighting that the cap will only apply to those entering care from October 2023, not those already receiving it.

Another key takeaway is that the amount building up towards the cap is based on what someone’s local authority would spend if they were the ones meeting the personal care needs in full. In other words, someone spending £850 per week on care fees would reach the cap at the exact same rate at someone down the road spending £1,500 per week on care fees if they received the same level of personal care. Someone receiving care in their own home would only be covered for the number of hours their local authority thinks they would need, and this would be set at the price they would be willing to pay for it.

It is the local authority that will keep a record of this in a ‘care account’. This will mean that many self-funders who currently have little to no interaction with their local authority will have to apply for a needs assessment, which will then be reviewed on an annual basis. Self-funders will also be able to ask their local authority to arrange their care for them; it is hoped local authorities will be able to secure these self-funders a lower rate for care due to their bulk purchasing power, but many care homes rely on the higher fees from self-funders to subsidise the costs of state funded residents so there is the expectation that the amount local authorities pay to care homes will have to go up.

According to LangBuisson[2], the average cost of residential care in the UK in the year ending 31st March 2020 was £672 per week but it is worth noting that there are considerable regional variations in this. Let’s say for argument’s sake though that someone is entirely self-funding their care at the average rate of £672 per week, of which their local authority personal care allowable rate is £472 and the remaining £200 relates to their ‘hotel style’ daily living costs. This would see the cap reached in approximately 3½ years, during which time over £122,000 would have actually been spent.

As touched upon earlier, self-funders tend to pay more than state-funded residents for care, so they are likely to pay more than the average rate. If they were paying £850 per week and their local authority rate was still the £472 per week then the total cost would be closer to £155,000 before the cap was reached. It’s worth remembering that, even once the cap is reached, the funding received after this point will still not cover everything.

The average length of stay in a residential home is around 2½ years, meaning that many who require care later on in life may not need it for long enough to reach the cap in place. Whilst someone may receive domiciliary care for many years before entering residential care, the costs of this tend to be significantly lower and this is often provided by family members so may not count towards the cap.

The other big change is to means testing and financial assistance. Under the current regime anyone with eligible capital of £23,250 is expected to meet the full costs of residential care and this tapers down until it is disregarded at £14,250, at which point the local authority will meet the costs of care not covered by the individual’s income. Under the new system the higher threshold increases from £23,250 to £100,000 and the lower threshold increases from £14,250 to £20,000. If someone has between £20,000 and £100,000 in eligible capital, then they will be expected to contribute ‘no more than 20% of their chargeable assets per year’ (things such as property or investments can count as these) on top of their income towards the cost of care.

Let’s use an example: Jean is 92 years old with chargeable assets of £60,000 and net annual pension income of £15,000 (equivalent to £288.45 per week). She is about to move into a care home where she will be paying £672 per week in residential care fees. She is eligible to keep £24.90 per week of her income under the Personal Expenses Allowance for the likes of toiletries but her remaining income of £263.55 per week plus £12,000 per annum from her assets will be expected to be put towards the cost of care, with the local authority meeting the remaining £177.67 per week. This will continue until either she reaches the cap for care costs or her assets fall below £20,000, whichever happens sooner.

What has reading the small print told us? The changes are an improvement on the current system, but the cost of care is likely to still be substantial. Those with eligible needs staying in a care home for longer than the average and those with chargeable assets of less than £100,000 who can now receive local authority assistance towards the cost of care are the main beneficiaries of this.

Everyone’s circumstances are different, but it is always worth seeking advice on how to best navigate the care system, how to maximise the amount of wealth you are able to pass on and how to ensure it ultimately passes on how you want it to.

Jonathan Warhurst APFS
Chartered Financial Planner