Andrew Lansley, the Health Secretary, claimed that his social care proposals published on Wednesday are "the most radical reform of care costs in 64 years". It's true that the whole issue of paying for care in old age has been long overdue for change. But Mr Lansley's ideas offered few solutions.
The issue is a major one that affects us all as anyone who survives into their eighties or nineties is likely to need some sort of care at some stage. While currently there are around 400,000 elderly people in residential care, that figure is set to soar. The healthcare research firm Laing & Buisson reckons it will increase to 750,000 in 2031 and more than triple by 2081 to 1.5 million people.
The question is who should pay for care? Should we fund it ourselves, or should the state step in? Bear in mind that a decent residential care home currently costs around £30,000 and you'll get an idea of how expensive future care costs will be. But even the cost of having care in the home – such as important improvements to help an old person cope – can mount up.
Few people can afford to pay for care now and – unless they save specifically for potential future costs – few will be able to afford it in the future.
The current system is scandalously unfair. At present people's needs are assessed by local councils, which means that, depending on where you live, you may or may not get financial help. The so-called postcode lottery has led to a ridiculous situation which has created 152 different systems across England alone.
If you live in the right area, you'll get help. But, according to research by the charity Age UK, around four-fifths of local authorities limit free care in the home – such as home helps, meals on wheels and the installation of stair lifts – to those whose needs are deemed "substantial" or "critical". Most councils no longer help with care costs for people classified as having low or moderate needs.
On top of that inequality, there's also an attack on people's savings, penalising those who have worked hard to build up assets in their lives. Specifically it often forces people who own their own homes to sell up and use the cash to pay for residential care if they need it.
The current rules state that people with savings of more than £23,250 who need help at home must pay in full. Those with assets of less than £14,250 get all their care paid for. Meanwhile those with savings between £14,250 and £23,250 must contribute to their costs. Anyone needing residential care faces the same means test, but taking into account the value of their home.
The Home Secretary's "radical" new proposals include a proposed cap of £35,000 on lifetime residential care costs. However the Government indicated the possibility of the cap being as high as £100,000, which would still swallow up most people's assets.
The Government also proposes the introduction of a universal deferred payments scheme to allow pensioners going into residential care to borrow from their local council. The latter have quickly been dubbed "death tax loans" by critics.
"The justification for this scheme is that people won't have to sell their home to pay for care. But using the value of their home to pay for care is just deferring the fact that they are still expected to use the equity in their homes," pointed out Peter Gatenby of the lawyers Mazars. "Again a Government has failed to grasp the nettle and kicked the funding of care into touch. Why are our politicians not prepared to propose a sensible long-term solution to pay for care?"
Ros Altmann, director general of Saga, asked: "Will this system stop people from losing their life savings including their family homes? The answer is no, people will still lose everything. The 'universal deferred payment' loans will delay people having to sell their homes but does not set a limit on how much people should spend on care."
Janet Davies, of the specialist care advisers Symponia, said: "There is still no mention of where the money will come from, and this is just another example of the Coalition pushing the problem on to someone else's plate.
"Everywhere you look there are spending cuts; in education, in health, in housing, and as care of the elderly has never really taken centre stage, why would Cameron place it there now?"
She accused the Coalition of ignoring the problem in the hope that others would sort it out. "They are relying on the next generation and/or the financial services sector," she said.
Another problem with the proposed cap on contributions – whether it be £35,000 or £100,000 – is that it won't cover accommodation costs.
"This is fundamental as these costs are typically two or three times as large as personal care and nursing costs taken together," warned Chris Horlick of the specialist advisers Partnership. "Few are aware that they will have to meet these costs and are unlikely to plan for them."
A simple solution for those who need residential care is to sell their family home to pay for the costs. Many are reluctant to do so as they want to be able to leave the home to their children.
With Bupa reckoning that the average life expectancy in care is two years and three months, it's easy to assume that selling a home for, say, £200,000 will raise enough cash to pay for fees. But Partnership reckons one in 10 people will live for eight years in care, at a cost of between £245,000 and £363,000. When the cash from the sale of the house runs out, most will be forced to fall back on state help, which could mean being moved homes, for instance.
A solution for folk in that position is an immediate needs annuity. It's effectively like an insurance policy except you pay all the premium upfront in return for a set income. It can be an expensive solution, but can provide peace of mind (see case study, top right).
Those who need to pay for care at home need a different solution. Stephen Lowe of Just Retirement suggests equity release – where you effectively mortgage part of your home for a lump sum – could be the answer. "Equity release allows many people to stay in their own home and stay in control," he said.
But with different options available, the Government needs to be clear about the details as soon as possible, said Andrea Rozario of The Equity Release Council. "The UK's over-55s do have access to £250bn in housing equity but we need to ensure that we provide a fair and defined framework so consumers can make informed choices about their finances."
'We wanted mother to be settled'
By Simon Read
A stroke two years ago left 85-year-old Marion Gunner of Oxfordshire needing residential care. But at £800 a week, her daughter Lynne Stimpson struggled to find ways to pay for it.
"We sold my parents' home to raise £220,000 which, we reckoned, would cover care fees for about seven years," she says. "But I was worried about what would happen then, as both my brother and I would be long-retired and unable to help with ongoing costs."
Lynn had been talking to an independent financial adviser about her own retirement and so she asked about care costs. She was referred to Andrew Dixson-Smith of Care Fees Investment, who told her about immediate needs annuities.
"It seemed a great solution," says Lynn. "The annuity was not cheap at £170,000, but even after spending that, my mother was left with a little bit of money, and crucially the policy ensures she will always have her care fees paid for, especially as the payout rises 5 per cent each year."
Lynn pops over to see her mother in the home three or four times a week. "She's flourished in the home and we've noticed a physical improvement in her.
"Our only concern was for our mother to be as settled and happy as she could be, and we've achieved that. We have the peace of mind of knowing that however long she lives, she won't have to leave the home where's she's comfortable."Reuse content