What is the new care cap, and could it benefit you?
by MATHEW ANGELL, Dip PFS
Accessing and paying for care have become big issues. As more people reach old age, more people will inevitably need some level of support as they get older. Now, the government has taken steps to fund social care and limit the cost to individuals.
So, how does the new care cap work and who will benefit from it?
Social care reform: A National Insurance hike and care cap
In September 2021, the government announced some key changes to social care and how it’s funded.
Among the changes is a National Insurance (NI) hike. NI contributions will increase by 1.25 percentage points from April 2022 to allow the government to invest more in health and care. From 2023, the Health and Social Care Levy will be a separate contribution.
The government estimates the new levy will lead to a record £36 billion invested in the health and care system over the next three years. Some of this will go towards helping the NHS tackle Covid backlogs, as well as reforming adult social care.
Most individuals need to pay for at least a portion of their care costs should they need support. According to Which?, the average weekly cost of residential care was £681 in England in 2019/20. This figure increased to £979 a week if nursing care was required. Over a year, that would lead to bills of £35,412 and £50,908 respectively.
You may have heard from family and friends, or even in the news, of people needing to sell their home or other assets to fund their later-life care. As a result, you may be worried about the future.
The government has now introduced a care cap. From 2023, no one will pay more than £86,000 for the care they need for daily tasks. It said the reform will end “unpredictable and catastrophic care costs” to make the system fairer. However, the cap isn’t as straightforward as it seems.
What does the cap cover, and who will benefit?
Crucially, the cap will cover care costs only. It will not cover daily living costs, such as accommodation, energy bills, or food.
For care home residents, it can be difficult to understand how much of their current fees go towards care, as bills are not usually itemised. However, the Telegraph reports that a typical person in residential care costing £1,100 a week can expect just £350 of this to go towards care.
In this scenario, just £18,000 of a total £60,000 annual bill would contribute towards the cap. As a result, the person would only start to receive government support after five years, while during this time they would have spent £210,000 of their own money on non-care items.
In addition, few care home residents will survive long enough to reach the cap. As care is often a last resort or only used when an individual needs round-the-clock care, half of people do not survive longer than a year after they move into a care home.
The care cap could benefit those who remain in care for several years. However, they will still need to be aware of how they’ll pay for non-care costs, whether from their assets or income.
60% are considering an alternative to care homes
It’s not just the cost of care homes that worries people. Some 60% of UK adults, the equivalent of 31.6 million people, said they worry about moving into a care home after seeing how Covid-19 spread in them, according to an LV= survey. This number increased to 65% among the over-55s.
Around the same proportion (61%) said they’d prefer to stay in their own home.
While this can seem like a cheaper option, it does still come with costs. You may need to adapt your home to make it suitable for your needs or need a carer to visit regularly to lend support, even if family can help. These costs can still add up to thousands of pounds every year and it’s important to understand how you’d pay for them and the impact it could have on your income.
No one wants to think about becoming ill or needing more support in old age. But by making a plan and setting aside some of your money to fund it if needed, you can have greater confidence in your future. Being proactive can also mean you have more choices. For example, having your own care fund to draw on may mean you’re able to choose a care home that’s close to loved ones and has facilities you’ll enjoy.
If you haven’t thought about your care preference or how to use your assets if you need care, please contact us. We’ll help you put a plan in place that can deliver peace of mind.
Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
ABOUT THE AUTHOR
MATHEW ANGELL, Dip PFS
Director & Financial Lifestyle Planner
Matt’s goal is to help you develop great financial habits and make sure your life is at the forefront of all plans that are put in place. His vision is to be your trusted partner through your life, there to help you through the difficult times and appreciate the good.