Social Care 2021

On Tuesday Ministers announced the long awaited social care reforms, which we should note are yet to be clearly defined and ‘fleshed out’. As protection and financial advisers we work day to day to ensure our clients have the best protection and financial advice for their assets so they have the freedom to decide what happens to these as they go through their lives, and when they are no longer here. 

What do we already know about the new reform?

Key proposals of the new social care plan are:

• No longer will anyone pay more than £86,000 in care costs - not including food and accommodation - over their lifetime, from October 2023
• Once this cap is reached, ongoing costs for personal care will be paid for by local authorities
• Those with between £20,000 and £100,000 in assets will get means-tested help towards costs from their local council
• Those with less than £20,000 will not have to pay towards care costs from their assets at all, but might have to contribute from their income
• The tax will be raised through a 1.25 percentage point rise in National Insurance - which working people and their employers pay - from next April 2022
• Income from dividends - by those who own shares in companies - will also see a 1.25% tax rate increase
• The NI rise will cost £255 a year for someone earning £30,000, and £505 a year for someone on £50,000, the government says

Full details of the proposed changes can be viewed in the government’s 33 page document here - ‘Build Back Better – Our Plan for Health & Social Care'

A key part of the proposed changes is, what constitutes ‘care’ and what counts towards the £86,000 threshold? How will the total cost of care be broken down by local authorities in deciding what does or does not form part of the £86,000? And crucially, will clients still risk losing their hard earned assets and home if they are over the £86,000 threshold?

Ministers have tried to answer this question raised by many already, by confirming that this cap only relates to the costs of providing assistance with what has been loosely clarified as washing, dressing, providing medication and general care. IMPORTANTLY they have confirmed that the cap does not cover the costs of food, energy bills and accommodation which is usually the more costly part of a residential care home fees. So it will take longer to reach the cap than may have been initially thought, and even when the cap is reached, there will still be sizeable costs to be paid.

The average cost of a care home is thought to be around £38,000 a year. We don’t know how much of this counts towards the cap and we don’t know what would happen after that? There is a lot that is not yet clear. 

A person who has a home and not much else in savings may still need to use a good portion of their home to pay for any care fees, and accommodation/food on top of that.

Would people need to sell their homes?

Many clients come to seek advice weekly about protecting their home for children and grandchildren in the future. It was hoped the latest announcement would provide more security for those whose home is their main asset when it comes to funding residential care, as perhaps this is the only inheritance they will be able to leave to their family.
When Mr Johnson and Mr Javid were asked by Labour and other senior ministers whether people would now be prevented from selling their home because of the new care cap, the response was less than reassuring.
‘We will make sure that everyone is able to access what is called a deferred-payment agreement (DPA) which means no-one will have to sell their home in their lifetime.’ (Mr Javid)
So let’s understand what a DPA is…

What is a Deferred payment arrangement (DPA)?

This is a legal arrangement introduced by the government in 2015 between a home owner and the local council. It covers care costs up front and secures these against a person’s home at a fixed-interest rate.
When the person passes away in the future, their home is sold to repay the loan but as well as interest, there may also be other administration costs deducted. Therefore, not really protecting the family home for future generations.
We think the key thing to take here is that a person may not have to sell their home in their lifetime (if this is their only asset), but when they pass away and want family members to inherit, the family members will only inherit what is left after the charges have been paid on the property, along with any other necessary administration costs. Thus, not providing security for family inheritance.

What can people do now to best protect their home in the future?

Whilst the new rules are making their way through parliament, government policy on social care reform will undoubtedly change and evolve over months and years, the fact is a person’s home and other assets could still be at risk. As advisers, we want to do what we can to ensure our clients are aware of these risks and what possible solutions there may be to protect as much inheritance as possible.
Will and Trust planning is still the best way to protect family inheritance for the future and is the best way we can be assured of what will go to our loved ones when we are no longer here. Getting the correct advice at the right time is crucial.
Please do not hesitate to contact the advisers at Florins to guide you through the options and plan for this now rather than wait to see what might happen in the future.

Call Florins office on: 01507 304222 Email: [email protected]