Individuals who make private provision for the costs of care in later life could benefit from proposals to widen the role of insurance in state-funded social care.
Ahead of next year’s general election, both the Labour government and the Conservative opposition party have pledged to reform the “unfair” system, that sees individuals with assets of £23,000 or more in England having to fund their place in a care home.
This, according to the Tories, results in about 45,000 elderly people a year losing their homes or life savings to pay for nursing or residential home fees, which can range from £25,000-£35,000 a year.
The Tories this week pledged to end this “immense injustice” by introducing a Home Protection Plan, a voluntary scheme whereby those aged 65 would pay a one-off fee of about £8,000 in return for a guarantee that “absolutely all fees for permanent residential care would be waived – for life”.
This contrasts with one Labour proposal, outlined in a current green paper on social care reform, for individuals over retirement age to pay £17,000-£20,000 into a state insurance scheme to meet any future cost of their care – though not the cost of their accommodation.
Both parties are yet to provide exact detail on how the schemes would work. But the proposed contributions are much lower than the insurance premiums currently paid by individuals to secure peace of mind for their long-term care needs.
A 65-year-old can typically expect to pay a lump sum of about £90,000, or premiums of £700 a month, to cover the costs of a £25,000-a-year care home. These payments could be halved (see table below) if the individual has pension income.
A immediate needs annuity, another way of paying for care costs closer to when it is needed, will cost an 89-year-old about £48,000 upfront for a £1,000 a month benefit.
Neither Labour nor the Tories have yet said how their proposals would affect existing self-funders.
But the dwindling care fee industry says self-funders could only benefit if take-up of insurance was pushed more widely than is proposed.
“Ten years ago, there were about 10 players in this long-term care market, but now there are only two as demand is very small,” says Kevin Sweet, marketing director with Partnership, one of the two providers of long-term care insurance plans and annuities.
“Growing the market and getting more players can only be a good thing for everybody in terms of competition, product innovation and premium levels.”
Other advisers believe that current insurance plans are “flawed” and would need improvements to become viable to the mass market. “If a new policy is to rise from the ashes, it has to have guaranteed rates and be simple and straight forward... the more complex, the less likely the advisers and their clients will take it on board,” says Janet Davies, managing director of Symponia, the care fees financial advice firm.
At present, advisers say there is still too little detail to assess fully the benefits of either political party’s proposals.
“On the face of it, the Tory plan looks a lot more generous if they are offering to meet the ‘full’ cost of residential care from a single premium of £8,000,” says Alex Edmans, a care adviser with Saga Personal Finance.
“But we still do not know what the ‘full’ cost will cover under these proposals, what level/standard of care this would provide, or when an individual would be able to claim.”
