New pension freedom may lead to care fees problem

An end to annuities could see older people fall foul of a little-known rule that could hit their right to funding if they need to go into a care home.

The Deliberate Deprivation rule is aimed at people who give away assets, such as their home, so that the money can no longer be counted towards their financial means test assessment when they need to go into care.

But anyone who embraces the new pension freedom announced by the Chancellor in the Budget this week and spends their pension pot rather than buying an annuity could be hit by the rule, a long-term care expert warned.

"A person who spends the majority of their pension pot while healthy in their 60s and 70s but then finds they have no money to fund care bills in their 80s and 90s could be guilty of deprivation," warned Janet Davies of the care fees adviser Symponia.

She supports the end of unpopular annuities, as the move will give pensioners an increased flexibility and choice about how and when they use their money, in addition to being able to enjoy it while still active and healthy.

"But by removing the compulsion to buy an annuity from 2015, the need for financial advice will go up a couple of gears. Hidden, or not even mentioned, in the small print is the potential for hundreds, if not thousands of people, to unintentionally fall foul of the Deliberate Deprivation rule."

For an act to be classed as Deliberate Deprivation, the motive must be just that; a deliberate act to move money and/or assets. It is all about the intention.

"While spending money as such isn't currently regarded as deprivation, the new rules might see attitudes shift and tighter controls established," said Ms Davies.