Long term care - Dilnot in Wonderland?

The Dilnot Commission may have come up with a workable solution to the adult social care problem but, as Peter Barnett explains, it has to get past the politician.

The Dilnot Commission on funding adult social care has now reported and from a financial services perspective, the report is to be welcomed.

The top line recommendation a combination of a nominal individual £35,000 care cost cap and a £100,000 means-tested threshold will ensure that no-one going into residential care would have to spend more than 30% of their assets on their care costs, although some people will do better than others.

Putting a limit on the maximum lifetime costs people may face will allow them, with the assistance of the appropriate products from financial services, to plan ahead for how they wish to meet these costs.

The ‘partnership’ model it recommends for most people strikes a fair balance between individual and state, and ensures that the highest costs, which frequently occur at the end of life, will not fall on individuals and their families.

The cost cap should also allow the financial services industry to develop affordable products for many people, while shielding some individuals from potentially ­catastrophic costs.

These are individuals whose assets lie above the means test and who, as above, have the option to seek insurance solutions to source funds to pay for their initial period of care, plus a potential local tariff top-up, before state funding kicks in and their accommodation costs throughout.

For example, products with a defined limit on claims should be considerably less expensive and, with the appropriate tax treatment, enhanced or immediate need annuities could perhaps evolve into disability linked annuities to fund the initial care period.

Deferred annuities are another interesting product avenue that may be worth pursuing.

It is also feasible that insurers could develop current product offerings such as pensions, savings schemes and critical illness covers into care or accommodation top-up funding vehicles alongside inheritance and estate planning advice, including equity release possibilities.

However, it is important to remember that these are just recommendations to government and there will be a lot of choppy water to navigate before anything concrete emerges.

For when politicians are the intended audience, whatever is presented has to be couched in terms that firstly solves a current problem they face that won’t go away and secondly, provides a solution that won’t make them any more unpopular than they already are.

While the Dilnot report does well on the former, it risks falling short in the voter popularity tables.

This is not a new phenomenon. For political apprehension of voter reaction has stopped many a proposed policy change in its tracks, as the politicians, confronted by difficult issues, dither and scramble to find safe ground.