Beware of hidden costs in the Government’s proposals to cap care fees for the elderly.

Do you worry about having to spend your life time savings on care fees? Are you concerned about the spiralling costs of care? These are concerns shared by many planning for their retirement. The Government’s recent proposals to cap care fees for the elderly suggested that there would be a ceiling to these costs. However, there are in fact hidden costs, which fall outside the cap, leaving the future costs of care far from certain.

The current position

Currently, there is no cap on care fees. If you have capital over £23,250, you pay for your care costs in full, unless you qualify for free assistance. You will continue to meet your care costs in full, until your capital falls to £23,250.

If you have capital between £14,250 and £23,250, you are expected to make some contribution to your care costs from your capital, as well as from your income. If you have capital under £14,250, you contribute to your care costs out of your income only.

The fact that there is no cap on care fees, leaves many anxious that their hard earned savings will be depleted, leaving little money to enhance their retirement or pass onto children.

The proposed changes

It is proposed that your contribution to care fees will be capped at £75,000. It is also proposed that the means tested threshold will rise from £23,250 to £123,000. If you have capital worth £123,000 or less, you will receive some degree of state assistance with your care fees.

The lower capital limit will be increased from £14,250 to £17,500. If you have capital between £17,500 and £123,000, you will have to contribute an additional £1 for every £250 you have. This is on top of any payment you have to make out of your income.

When are the changes due to take place?

The plan is due to be phased in over a number of years, with the main proposals due to come into effect in April 2017.

Hidden costs

There are a number of costs, which fall outside the cap on care fees, making the overall costs far less predictable. The cap is based on the weekly amount the local authority is prepared to pay for the resident’s “eligible care costs”. The actual cost of care will vary from home to home. There will also be cost variations across the country.

You will still be required to top up any costs, if you choose to go into a care home, where services are above the normal council rate, which has yet to be specified.

You will also have to fund general living costs, such as food and accommodation costs, on top of your care fees. In residential care, a contribution of £1,000 per month will be required.

Time is of the essence

Under the new proposals, you will be required to actively engage with the local authority, to enable the “financial clock” to start ticking. This does not currently apply. It is not anticipated that you will simply be able to contact the local authority, when your capital reaches the threshold limits.

Will the proposals affect you?

It is anticipated that the majority of people will still have to pay their care fees in full, with less than a fifth of people likely to have care costs of £75,000 or more. Whether you benefit from the changes, is likely to depend upon which part of the country you live in and, in particular, house prices in your area.

Postponing payment

At present, it is a post code lottery whether you have the option of postponing the repayment of care fees until after your death. The deferred payment scheme is set to become universal in 2015, giving everyone this option. However, local authorities are likely to be allowed to charge interest on the loan.

Financial Planning

The Government anticipates that their plans will be supported by a wider range of financial products becoming available on the market, such as provision of care through insurance or pension products. It is intended that individuals will be covered up to the value of the cap, reducing the risk of selling their home or losing an inheritance. However, as indicated above, there are likely to be additional costs, which fall outside the cap, making it difficult to predict future care costs. We have yet to see whether these financial products will materialise and whether they will be affordable.

Will the cap on care fees and changes to the means test definitely be implemented?

The short answer is no. The proposals have not yet been made law. Changes could be made, following debate in Parliament, and some of the changes may not be implemented at all.