The key proposals tabled in a report published by the Association of British Insurers (ABI) today include:
Scrapping or limiting tax on pension withdrawals if funds are used for care-related purposes
Excluding payments arising from care insurance products from means-test assessments from local authorities
Improving consumer understanding of long-term care funding through an awareness campaign and provision of additional information and guidance
Reforming advice rules to allow more personalised guidance which considers individual customer circumstances to be developed
Tom Selby, Head of Retirement Policy at AJ Bell, comments: “Reforms to the UK’s creaking long-term care funding regime have been over a decade in the making and are still yet to see the light of day.
“Proposals first set out by Andrew Dilnot in the early 2010s have been supported, tweaked and then pushed back by successive administrations, with the associated costs and surrounding controversy, particularly for Theresa May, deemed too painful to bear.
“The latest version of the care funding reforms was put forward by former Prime Minister Boris Johnson in 2021 and would have expanded means-tested support and capped lifetime personal care costs at £86,000 from 2023. The reforms are now not expected to be implemented until 2025.
“This constant kicking of the can down the road is a nightmare for those looking for certainty over how much their care might cost. It also risks putting off financial services firms who might offer long-term care products.
“However, one potential silver lining is it provides a window of opportunity to consider whether there are features of the existing system that could be improved ahead of the delayed introduction of the cost cap.”
Using pensions for care and tackling means-testing
“For millions of people, and particularly younger generations saving for the future, defined contribution (DC) pensions are going to be the bedrock of their later life spending plans. It therefore makes sense to explore linking pensions and care funding.
“If people could access their pensions at a preferential tax rate – or even tax-free – to pay for care, this could have the dual benefit of incentivising higher levels of retirement saving and making it easier for people to pay for their own care if they need it. This should also reduce the likelihood of people needing means-tested support from the state.
“In addition, it is vital that the means-testing system doesn’t create disincentives for people to fund their own care needs – a risk clearly outlined in this PPI report.
“Once we have clarity over exactly how the system will work, people need as much help and support as possible to understand the rules and enable them to make sensible decisions.
“Ensuring the boundary between advice and guidance doesn’t act as a barrier to the provision of useful information to people in this, and other areas of financial services, is therefore of paramount importance.”
In brief: what reforms to long-term care funding have been proposed by the Government?
The current system*: your savings and assets are measured against an asset threshold, currently set at £23,250 (the ‘upper capital limit’). If you have savings and assets over that value, you are not eligible for means-tested support and must pay for care yourself.
If you have savings and assets worth between £14,250 (the ‘lower capital limit’) and £23,250, you qualify for some means-tested support. If you have assets worth less than £14,250 you do not contribute towards your personal care costs.
It’s important to remember that if you receive care in your home, or you receive care in a residential care home, but your partner or child continue to live in your property, the value of that property will NOT count towards the means-test.
The proposed new system: under proposals originally designed to be implemented in 2023 (but subsequently delayed), the upper capital limit would rise from £23,250 to £100,000 and the lower capital limit from £14,250 to £20,000.
In addition, an £86,000 cap on lifetime care costs would be introduced. This cap would apply to personal care costs only, so would not cover things like accommodation or food (‘hotel’ costs).
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