Around 40,000 people a year have to sell their home to pay for care.
The long-awaited Care Act came into force this April, when the 'deferred loan scheme', first proposed by the Royal Commission over a decade ago, became universally available in England.
The 'care cap' is the second half of the overhaul, aimed at limiting what people pay for care, set at £72,000. But it won’t come into force until April 2016. (Please note that the Government have now announced that the care cap will be deferred until 2020, see here for more details).
About 40,000 people a year have to sell their home to pay for care because they have limited income or savings, it is estimated.
The average annual residential care home bill is £28,000 and the typical stay is two years.
Yet one in 10 who enter the care system end up paying over £100,000 in fees.
What you pay depends on the local authority. The average weekly fee for people in England is £558. Care is cheaper in Wales and Northern Ireland with average weekly fees of £513 and £467 respectively. The most expensive care fees are in Scotland with an average cost of £565 per week. (Source: Laing Buisson Market Report 13/14).
How to avoid care fees. Spoiler: You can't.
Since October 2001, it has been possible to pay for residential care by applying for an open-ended loan, to be repaid by the sale of their property. Instead of paying care home fees, bills are deferred and the debt is rolled up.
The local authority takes a “charge” on the value of the property, so when it is sold - after the resident’s death - the fees are paid from the proceeds. No interest is charged on this debt until after the resident dies.
From April, this scheme became universally available, with only a handful of exemptions when the local authority can refuse to provide it.
How do deferred loans work?
Unlike the previous scheme, which was largely interest-free, interest and administration fees will now be charged adding to the debt to be repaid. The interest rate will be around 2.65%. Anyone with a property and other assets of £23,250 or less (excluding a pension) will qualify for the loan.
Though the loan is designed to prevent a property having to be sold during someone’s lifetime, it is still likely that the property will have to be sold on that person’s death in order to repay the accrued debt.
The Care Cap
From 2020, a ‘care cap’ is to be introduced to limit the amount people have to spend on their care. The cap has been widely criticised for being complicated and many providers have warned that because the cap does not cover some costs, such as accommodation, food and living costs, people are likely to end up paying much more than £72,000.
Indeed, the element of long-term care that goes up the most is the ‘hotel’ bill.
To be eligible for help, you first need to be assessed by your council as having very high needs, and only the rate set by the council will count towards the cap.
What are the pros and cons of live-in carers?
What happens if I choose a more expensive care home?
For those who may choose to pay more to stay in a more up-market care home with better services and facilities, the top-up will not count towards the cap. Once you reach £72,000, you will still be responsible for paying the lifestyle costs and any extra costs.
For example, if your care home fees were £500 per week and the local authority rate in your circumstances was £400 per week, the extra £100 per week would not count towards the cap.
On top of this, living expenses of £12,000 a year (£230 a week) will also be excluded from the cap, so the £400 becomes £170 a week against the care cap. This leaves care costs of £330 a week that are not included against the cap. Therefore, most will end up paying over and above the £72,000 before the care cap takes an effect.
The BBC has produced a care cost calculator that can help you to find out how much care costs where you live and how much you may end up paying over and above the £72,000 cap.
What if I need care now?
The market for specialist long-term care products is small. One option for raising cash for a care home is equity release. Rather than sell the resident’s home, a loan is taken out against its value and the capital and interest owed is repaid when it is sold, usually when the homeowner dies.
Another option is to consider an Immediate Care Plan, where in exchange for a lump sum, a tax-free income is paid directly to the care provider for life.
Many financial advisers now specialise in helping elderly people meet care costs – as well as advising on what State benefits can be claimed. It is worth speaking to a specialist to ensure you fully understand your entitlements and the funding options available.