City ready for role in elderly care funding

CITY experts welcomed sweeping proposed changes to how care for the elderly is funded yesterday, as they would allow financial services firms to help people meet their costs.

Economist Andrew Dilnot (pictured) called for the current system, which forces people with more than £23,250 in assets to fund their care in full, to be scrapped to stop people losing their life savings.

His Fairer Care Funding report proposed capping the amount individuals pay and raising the means-test threshold more than four times to ensure care never swallows more than a third of people’s assets.

About one in ten currently pay more than £100,000 for care, usually by selling their house, due to the unlimited liability rule.

Dilnot’s report said care costs should be capped at between £30,000 and £50,000 per person with the rest paid by the state – and said this could create “a new space” for financial services firms to help cover that cost. “Care is the one major area of our lives where, at the moment, there is no way for people to protect themselves against the risk of high costs,” Dilnot said in the report.

By defining the amount people must pay, Dilnot’s system would allow banks or insurers to offer saving products – an equity release on a property, or a life insurance, pension or annuity-type product – to generate the full contribution.

But with many in the UK already failing to save enough to fund a pension it is unclear whether they could save extra for care.

“We need a clear and sustainable framework to work from, so insurers can help to establish a functioning market,” said Association of British Insurers chairman Tim Breedon.

PwC partner David Brown said both new financial products and more education was needed. “The proposals should provide the impetus needed for the financial services sector to confidently re-enter this market,” he said.

IN FIGURES | THE DILNOT COMMISSION’S RECOMMENDATIONS
People’s contributions to social care in old age should be capped to prevent them selling their home and losing their life savings to pay for their care.

An individual’s personal liability for care costs should be capped at between £25,000 and £50,000, with the state contributing the rest. Dilnot suggests that £35,000 is a fair figure for this.

The current system that forces people with assets totalling more than £23,250 to pay their care costs in full should end and only those with more than £100,000 would have to pay for their care in full.

Nobody should spend more than 30 per cent of their assets on care costs.

People would have to contribute about £7,000 to £10,000 per year to cover living costs such as food and accommodation when in residential care.

Anyone entering adulthood with a care or support need would be immediately eligible for full free state support without a means test.

All eligibility criteria for care should be standardised nationally to end the “postcode lottery” currently in evidence.

A £35,000 cap would cost the government £1.7bn in the first year, equivalent to just 0.22 per cent of UK GDP. The cost would rise to £3.6bn at current prices by 2015.

A cap on contributions would benefit the middle classes more than the poorest, as they pay far more towards their care than those on the lowest incomes.