Social Care Reform announcement – the reality

The announcement is based very much on the proposals previously recommended by the Dilnot commission in 2011 i.e., there should be a cap on the maximum amount people pay for care during their lifetime. This was then enshrined in legislation in the Care Act 2014 and then never implemented. So, we now have a refresh of the rules with new numbers, and a few additional points.

The main points of interest are:

A cap on care costs of £86,000 (introduced from October 2023)

£86,000 is the maximum that anyone will have to pay for care during their lifetime. However, the devil is in the detail and it’s important to note that the cap will not cover the cost of board and lodgings provided by care homes and only applies once an individual is assessed by their Local Authority as having sufficient care needs. In addition, the amount that will accrue against this cap is the amount their Local Authority assesses as being enough to pay for the care required. Given these two aspects in practice it could take many years before this cap is reached, and therefore this will only benefit a small minority of people.

Two other important factors to note

• There is no immediate change for those currently receiving care or who require care within the next 2 years, as any amount paid for care before October 2023 will not count towards the cap
• The board and lodgings aspect mentioned previously will still need to be paid beyond the point the cap is reached. We will provide a worked example once the figures for “board and lodgings” are known.

Changes to the means test thresholds from October 2023

Another change is in relation to the amount of assets people can have before they become eligible to receive any Local Authority help with care costs. There are lower and upper levels at present and these are changing to £20,000 and £100,000. In short this will mean that anyone with assets above £100,000 will have to pay for the full cost of their care. However, this will be a big rise from the current threshold of £23,250, meaning that more people will get help with their care costs as there will be some Local Authority assistance on a sliding scale from £100,000 down to the lower figure of £20,000. The lower figure will rise from £14,250 which currently applies, so again a decent increase.

It is not clear whether the current system of assuming a ’tariff’ income of £1 a week for every £250 of assets above the lower threshold will continue, but we do know that people will be expected to contribute towards the cost of their care from their income. If that’s not sufficient, they will contribute no more than 20% of their chargeable assets per year (we still await the definition of chargeable assets). Once the threshold of £20,000 is reached, no further contribution from assets will be required, but some income will be used as is the case currently.

Arranging care

For many self-funders, it can seem unfair, and we are regularly asked why people that haven’t saved or built up their personal wealth effectively get their care ’free’ and those that have been prudent and saved have to pay for their own care, and in fact end up subsidising Local Authority funded residents by ’overpaying’ for their care.

The Government recognises this disparity and proposes to resolve this anomaly by implementing another element of the Care Act and allowing self-funders to ask the Local Authority to arrange the care on their behalf, thereby utilising the greater buying power they have. In practice this proposal could also prove to be problematic and cause further issues down the line, as currently the level the Local Authority pay for care is often not enough to cover the actual cost of care which is how the ‘overpaying’ occurs. There’s some concern that this move will either drive standards further downwards or cause more care providers to go out of business.

Care at home

The new rules seem to focus more on those in residential care and not with the vastly higher number of people that receive care at home. This is a vital part of the care “journey” and with the right support in place early, can delay a move into a care home or admission to hospital.

The levy

There has been very little detail released at this stage, but the key points are as follows:

• This will be introduced from April 2022 as an increase of 1.25% to the rates of National Insurance before being shown as the separate Levy from April 2023. The increase will apply to employers, employees and the self-employed.  This will therefore be an effective 2.5% increase for those individuals who own their own company and pay both the Employer and Employee Levy on their salary.
• It will include individuals who are exempt from paying National Insurance, such as those over State pension age
• The amount of Levy payable will therefore depend on an individual’s income for the year with examples being:
  • No Levy payable for those earning less than £8,840 and only Employer payments due for those earning less than £9,568
  • An additional £192.50 payable by someone earning £25,000
  • An additional £505 for someone earning £50,000

The Levy does again highlight the benefits that can be obtained by making use of certain salary sacrifice arrangements, such as with regards pension contributions or the implementation of share schemes to reward staff.  The additional savings will make these more attractive for both Employers and Employees.

In addition, there will also be an increase of 1.25% in the rate of tax paid on the dividends.  As it is a straightforward increase in the rate of tax, it will have no impact on individuals who currently pay no tax on their dividend income, such as if the shares are held in ISAs or fall within the £2,000 annual dividend allowance.

There remains a worry that despite the apparently large sums of money being raised by the new tax increases, this is still insufficient to make a major difference to the quality and availability of care. The majority of the money raised will be used for NHS funding initially with very little going towards social care. There’s a major concern about the amount of money Local Authorities will have to put towards actual care provision rather than just administration of the cap, care needs and financial assessments – which we can assume will increase hugely in number.           

The long-awaited introduction of a cap to the amount people will have to pay for their care is welcome in that some of the uncertainty in this area is now removed. However, those thinking that this is the “magic bullet” that will avoid a major threat to people’s wealth are likely to be very disappointed. Those in care now or receiving care prior to 2023 are unlikely to benefit. The devil is in the detail of this announcement, and it highlights the importance of seeking specialist advice in this area as the reforms are not as straightforward as they would first appear.

It remains essential therefore to take the potential future cost of care into account when considering your financial plan and if you would like to look at your individual circumstances please get in touch, or alternatively click here…