“People will need to prepare and plan for social care costs as much as people prepare for their pension,” Hunt told the House of Commons. “They will be supported by a wider range of financial products becoming available in the market.”
Hunt said the decision to cap the cost of long-term care will enable members of the public to plan long-term financial decisions so they are capable of meeting the initial £75,000 costs. He hopes insurers will now fill the gap in the market and popularise products to cover the difference.
“Rather than feeling they have to hoard every penny in case the worst should happen, or feeling they are powerless and there is no point saving at all, people will be able to plan and prepare for the future,” Hunt explained.
“We will work with the care agencies, with local authorities, charities, care providers, and with the financial services industry to develop these plans and introduce them practically.”
Hunt confirmed that the assets threshold for mean testing, above which individuals receive no state support for their care costs, will rise from £23,250 to £123,000. He claimed this measure, together with the fees cap, will mean 100,000 extra people receive state assistance by 2025.
Hunt also confirmed that fees incurred while caring for individuals at home will count towards the cap, with the hope that this will reduce the burden on residential sites.
There will also be free care given to those who turn 18 with certain needs, a lower cap for people of working age who develop care needs before retirement age, and a pledge that from 2015 no one will have to sell their home in their lifetime to pay for residential care.
The £1bn a year cost of the reforms will be partly funded by freezing inheritance tax allowances for three years from 2015-16, as well as using some of the national insurance contributions associated with the end of contracting out some pensions.
Labour shadow health secretary Andy Burnham said the changes would “make the system fairer than it is today” but said it did not go far enough.
Last month Gary Shaughnessy, chief executive of Zurich's UK life insurance business, told City A.M. that his company was keen to be involved in providing cover for long-term care. He suggested individuals should be allowed to make a tax-free withdrawal of £10,000 from their pension in order to buy insurance to cover cost up to the £75,000 cap.
HOW WILL CARE COSTS BE AFFECTED?
■ Total care costs will be capped at £75,000, with the government paying anything above this amount. Around 16 per cent of elderly people are currently expected to spend more than this amount on their care.
■ The means testing threshold will rise from £23,250 to £123,000. Anyone with assets of less than this amount can expect to receive some assistance from the government.
■ There will be a lower cap on the cost of care for people of working age who develop care needs before retirement age.
■ Free care will be given to those who turn 18 and have eligible care needs.
■ From April 2015 no one will have to sell their home in their lifetime to pay for residential care, with those unable to afford the fees given the right to defer paying during their lifetime.
■ The cost to the Treasury is estimated at £1bn a year by 2020. To fund this there will be a freeze on the inheritance tax threshold at £325,000 for individuals until 2018-19.
■ The rest of funds will come from extra headroom created by private and public sector employer national insurance contributions associated with the end of contracting out pensions.
■ 100,000 people by 2025 are expected to directly benefit from these reforms.