A report by the Institute and Faculty of Actuaries (IFA) warns that fewer people than previously anticipated will benefit from the governments cap on the cost of residential care.
The study found that just 8% of men and 15% of women entering care at the age of 85 are expected to reach the £72,000 social care cap on costs that is being introduced in 2016. The report calculates that on average people are expected to spend approximately £140,000 in real terms on care costs before the cap is reached. If an individual is in long term care for 10 years this figure is expected to reach around £250,000. Significant regional variations in expected care costs and the time it is expected to take for the cap to apply have also been reported.
The government’s caps is a notional cap based on the rate the local council would pay for care provision and does not take into account the actual amount spent on care by an individual. The cap does not cover accommodation costs and living expenses.
The IFA’s study looks at the government’s cap on care costs and considers how pensions and non-pension products can be used to help fund people’s long term care needs. In particular, it suggests the creation of a new pensions care fund that could be ring-fenced to cover long term care costs.
Thomas Kenny, one of the authors of the report, said “Recent research data shows that 1 in 3 women and 1 in 4 men aged 65 today is likely to need care. Yet the average disposable income for retired households was £18,700 in 2011-12, which is below the level required to fund the average long term care costs before reaching the cap. Anyone who is expecting that the cap will pay for care is in for a shock. The cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.
“Second to property, pensions are the largest wealth asset for most people. Pensions are largely understood, there is an existing savings framework for them and, with the right tax incentives and flexibility, there are products that could help people to meet any care needs that they may have in the future. However, we also found that there is no silver bullet – no one product that would suit everyone’s personal circumstances to help them meet care costs. In the report we consider a number of existing and new products which, with the right tax incentives, could help people plan ahead, including a new Pension Care Fund.”