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Few to benefit from care cost cap

Pensioners hoping to benefit from the government’s care cap could be in for a shock as most will pay double the fee limit, because many costs are not included, the Institute and Faculty of Actuaries (IFoA) has warned. 

There are three types of care costs: daily living costs; local authority set care costs; and top-up care costs. However, the government cap, which is being introduced in 2016, only applies in relation to local authority set care costs. 

The IFoA’s report – ‘How pensions can help meet consumer needs under the new social care regime’ – found that, although the cap is set at £72,000, on average people are expected to spend around £140,000 on care costs before reaching it, which can increase to around £250,000, even allowing for the cap, if an individual is in long-term care for 10 years.  

Additionally, the research revealed that just 8% of men and 15% of women entering care aged 85 today are likely to reach the new social care cap. 

The cap, which is planned to be set initially at £72,000, will, the IFoA says, act as a safety net that will prevent individuals from facing catastrophic care costs. However, it will not offset or replace savings as a key means of funding care. 

Thomas Kenny, one of the authors of the IFoAs 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.” 

In the report, the IFoA considers a number of existing and new products which, with the right tax incentives, could help people plan ahead, including a new Pension Care Fund. 

It stated that the PCF would be a ring-fenced, long-term care savings fund that would sit within the framework of a defined contribution pension scheme. The savings would be treated for tax purposes like a pension and any money accumulated that was not used to fund care could be passed on, free of inheritance tax, for use as a long-term care fund by a spouse or other beneficiary.   

A Department of Health spokesman said the current system meant people with more than £23,250 "are literally on their own and many have to sell their homes in a time of crisis to pay for the care they need". 

“We are introducing the first ever cap on care which will protect people from catastrophic care costs and deferred payments so no-one should be forced to sell their home in their lifetime to pay for care,” said the spokesman. 


Caroline Abrahams, charity director at Age UK, told PSE: While the Care Bill updates and improves the law the cap on care costs is just not as straightforward as it sounds and there’s still a lot of ‘devil in the detail’ with the funding reforms. Unfortunately, the small print generally makes the new system less generous than originally hoped and fewer older people stand to gain as a result. 


“The care system is in crisis and the core of the problem is that funding for social care has failed and is still failing to keep up with ever increasing demand, putting the whole system on the verge of collapse. There is an urgent need for a frank and honest debate around the funding of care and who will have to pay for what. The Government needs to  give people a realistic idea of what they can expect to be paying for in the future.”

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