Social care plans: Should benefits count towards the cap?
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The government is looking to push through a social care reform despite headwind as it plans to exclude benefits for care costs from the new £86,000 cap introduced in England. Should the cap be the same for everyone – or should you reach it earlier if you are entitled to support?
Social care has been a hot a potato ever since Theresa May was forced to U-turn on her 2017 'death tax' proposal whereby people would have had to fund home care post-hoc by selling their homes; the issue significantly contributed to her losing the majority in the House of Commons in the general election that year.
‘Much more generous’ means test as main tool of support
Boris Johnson’s government has tried to address the twin problem of a lack of social care funding and people’s unwillingess to pay for it, saying it would cap the amount people will have to pay towards adult social care, while also introducing a ‘health and social care levy’ on the working population and employers, sparing pensioners.
The new £86,000 cap does not include daily living costs – rent and food – for people in care homes, which for which the government is setting a national, notional amount of £200 per week.
While the exclusion of living costs had been expected, last week brought a surprise and led to consternation among MPs when the government said it would amend the health and care bill so that means-tested support for those with assets below £100,000 will not count towards the cap.
The government justified this with the need for simplicity: “It is important that the new reforms are clear and reduce complexity,” it said. This means only the amount that the individual contributes will count towards the cap on care costs, “and people do not reach the cap at an artificially faster rate than what they contribute”, it added.
The government argued that the main tool for helping people with fewer assets will be the now “much more generous” means test of £100,000 instead of £23,250, which also comes with a higher ‘floor’ of now £20,000 instead of £14,250. Like the cap, the means test will be the same for everyone in England.
The new limits are set to be implemented in October 2023, and the government is planning to test the charging reforms with a small group of volunteer local authorities before the national roll-out.
MPs narrowly voted the changes in last night, but the bill still needs to go to the House of Lords before returning to the Commons for its third reading.
IFoA ‘disappointed’ at exclusion of benefits from cap
Many believe excluding the benefits of lower income people from the cap will hamper the social care reforms. Chris Reynolds, who chairs the health and social care board at the Institute and Faculty of Actuaries, said the IFoA was disappointed at the proposal not to include means-tested support from local authorities towards the £86,000 cap for personal care.
“This will disproportionally affect lower-value homeowners, who will end up paying the same as those in high value homes. Without fairness, the reforms are unlikely to achieve the consensus needed for a sustainable system going forward,” he said.
The IFoA is also calling on the government to ensure the social care portion of the new health and social care levy is ringfenced after 2023 to help address the funding challenges in social care and provide better long-term certainty. Initially, the bulk of the levy will flow into the NHS, and there are clearly fears that the NHS will seek to hold on to this income in future.
Will the reforms need to be revisited in a few years?
Tom Selby, head of retirement policy at platform provider AJ Bell, said: “The proposal to tweak the rules for the social care cap will clearly only hit those with assets below £100,000 who are entitled to means-tested help, and this alone will likely see Labour seize on the issue in the House of Commons.”
He also wondered about the level of the cap, and whether it would be seen as sufficient to appease those who want to protect people from having to foot their care bills, as £86,000 is still a considerable amount of money.
“When the idea of a cost cap was first proposed by Andrew Dilnot a decade ago, the hope was that insurance products would be developed to cater for the market. However, at this stage it remains unclear whether new products will be delivered or, crucially, whether people will buy them. Depending on how this plays out in the coming years, policymakers may need to revisit incentivising people to save for social care,” said Selby.
He proposed doing this via the ISA system – even though the lifetime ISA, which was an attempt to use the ISA system for pensions, has not managed to gain traction.
“Policymakers could also investigate the idea of tax-free pensions access to pay for care or using automatic enrolment to nudge people into saving for care alongside their retirement pot,” he added.