Partners in care

The Government is on the verge of introducing a new regime for long-term care

The Government's plans for partnership to prevent pensioners who need long-term care from having to sell their homes to pay the bills, provided they have taken out a measure of insurance to cover the initial costs, could take effect within 12 months if the proposals win all-party support.

The Green Paper was published last Tuesday and the Government has set a deadline of 14 June for detailed comments from interested parties. Detailed proposals could be ready for publication in the November Budget and could be effective from the start of the next financial year.

But there are still loose ends to tie up, and Help the Aged still thinks it will fail older people who are not eligible for automatic state support but cannot afford the premiums to pay for the insurance in the first place.

The Government has proposed two alternative forms of partnership, one that would guarantee to exempt pounds 1.50 worth of assets, including the family home, from means-testing for every pounds 1 worth of insurance the individual has bought.

It would mean in effect that anyone who needs residential or nursing care and has bought, say, pounds 40,000 worth of benefit from an insurance company would be able to keep assets worth pounds 60,000, plus the existing pounds 16,000 allowance, and still qualify for state support when the benefit has been used up.

An alternative proposal would protect only pounds 1 of assets for each pounds 1 insured benefit, but would increase the threshold by a further pounds 15,000, which some industry sources argue would be more favourable to wealthier people, and perhaps less costly to the Government.

Contrary to some initial fears it is claimed that the plans would not be prohibitively expensive for wealthier people. The average cost of residential care is currently around pounds 15,000 a year in the North of England, rising to more than pounds 20,000 in the South-east, with an additional pounds 5,000 for nursing care.

But this is within the reach of many people on substantial pensions, who can expect to pay for care out of income without having to run down capital or sell the homes they hope to pass on to their children.

Many others can obtain a limited amount of extra cover indefinitely by taking out existing long-term care policies issued by industry stalwarts like Commercial Union, PPP Lifetime and Bupa.

These providers have already undertaken that existing policy-holders will not be disadvantaged by the introduction of partnership policies, but the general view is that relatively few policy-holders would want or need to switch to a new-style policy.

The Government's plans are targeted mainly at middle-class families that do not currently qualify for state support because they have assets in excess of pounds 16,000, but cannot afford the premiums to buy insurance, and are therefore forced eventually to sell their homes to pay for continued care. An estimated 40,000 homes have to be sold each year since the Government forced local authorities to start charging local residents for care three years ago.

But the average lump-sum payment to buy pounds 15,000 a year of long-term care insurance for a 65-year-old man in good health is pounds 10,000 or perhaps pounds 75 a month until the care is needed. For a woman the costs could be 50 per cent higher.

It is possible to buy insurance up to the age of 85 but rates rise with age and individuals must still be in good general health to qualify.

Partnership plans could reduce premiums by a third, but lobby groups describe the proposals as a tax on the elderly, and too little too late for those already in poor health.

Commercial Union, however, points out that many people only need to buy a top-up to secure their assets, older people should still be able to raise the capital to pay for insurance by taking out a Home Income Plan to release part of the equity from their homes, while in their own interests families ought to be willing to help pay the cost of premiums for elderly parents in order to help protect their own prospects of inheriting something substantial.

The Government also proposes to allow individuals to forgo some of their pension early in retirement in order to pay premiums for long-term care should it be necessary, but the National Association of Pension Funds is concerned that the majority of prospective pensioners are already facing retirement on marginal or inadequate incomes, and should not be encouraged to deplete their incomes further.

Issues that still remain to be resolved include the extent to which the Government will be willing to encourage support for elderly people who have failed some of the tests for continuing to live at home, but are reluctant to leave home if they can receive home help.

Another is the minimum and maximum standards of care that individuals can expect if they take out a partnership plan. A third issue is the regulations needed to supervise an expanded care insurance industry.