The government faces a few problems in the next 12 months when it comes to its strategy for funding care of the elderly. Peter Barnett outlines the twists and turns.
Starting in a bad place both demographically and economically, just how can the government deliver the care people expect and demand within its current austerity programme? Even if it can pull off this huge task, will the financial services industry see value in participating in the ensuing funding mechanisms?
The main proposals of the Dilnot Report into a fairer funding system for adult social care, at a predicted cost of £1.7bn to the exchequer, were that an individual's lifetime contributions towards their social care costs should be capped at £35,000, with a national standard accommodation contribution set at a maximum of £10,000 per annum. The means-tested threshold, above which people are liable for their full care costs, should be increased from £23,250 to £100,000.
Another report from the Law Commission, on adult social care, was published just ahead of the Dilnot Report, recommending that all adults, including those ineligible for council-funded services, should receive appropriate advice and information.
The latter point is particularly important as self-funders, unlike state-funded care recipients, currently receive no informational support from their local authority. More often than not, under some sort of ‘attorney' arrangement, it is the children of the person needing care who are left unaided to organise it.
If a public information campaign emerges, designed to increase people's engagement with care and support, as well as the need to plan for it, it would be wise for the financial services industry to engage fully with this as an important element of working age protection and savings planning.
This is because good independent financial advice, as advocated by the Society of Later Life Advisers will be critical if people are to make the best use of their limited financial resources.
RACE AGAINST TIME
The engagement exercise for the Dilnot Commission terminated in December 2011. In response to both reports, ministers have announced they will publish a White Paper in the spring, followed by legislation. But nothing will happen until 2014-15 at the earliest. In the meantime, 150,000 older people will enter the current failing care system per year, of whom 40% will be poorly advised self-funders.
But pressure is building on the government. Following recent leaked suggestions of an implementational delay as late as 2025, two letters from senior executives of third-sector agencies and others were sent to the press and the Prime Minister, saying cuts to services are already creating huge pressures in the care system.
In that respect, delaying the reforms to care for the elderly is simply not an option.
They suggested that the government and the other party leaders seize the opportunity of rumoured new cross-party talks - the last such initiative foundered before the last election - to bring about urgent, fundamental and lasting reform of our social care system.
As the promised White Paper approaches, and the cross-party talks get underway, we can anticipate this ratcheting up of the pressure on the government to increase, both inside and outside parliament. This may have already begun, for over Christmas Labour warned the coalition that there has been a sharp rise in the cost of council services for elderly and disabled people.
Conversely, opponents to any increase in spending on care have already voiced economic concerns at the projected size of the Bill. Unfortunately, leaving it for the next parliament to deal with looks a much more tempting scenario for government.
Even if the proposals do get the go-ahead in the anticipated White Paper - and we shouldn't entirely rule out some other mechanism emerging in terms of yet another tweak of the existing rules - both the proposed cap and the threshold will come under strong pressure as the politicians try to shave some money off the final Bill by redefining the boundaries between free-at-point-of-use NHS health care and paid-for social care.
It is reasonable to believe that in order to reduce the cost of Dilnot, the individual care costs cap will be set at £50,000 or £60,000. Simpler consistent national eligibility and assessment criteria will emerge across the country, hopefully more closely aligned with financial services products and services.
A range of products to meet different needs could therefore be introduced. But for that to happen, regulatory barriers will have to be removed and replaced by a proportionate framework for the future, redefining the balance between consumer protection and product access.
AVOIDING DEEP DIPS
But there are some pitfalls, which prospective entrants to this market may need to consider. Poor investment performance, falling housing equity values and early mortality can all lead to unsatisfied customers. Even if the funding vehicle delivers what it says on the tin, poor care delivery may also fall at the funders' door - or put simply, if the care is poor, what am I paying for?
In terms of risks to the provider, it is also important to remember, as recent Partnership/GOP research has told us, while the average life expectancy in residential care is two years, for self funders alone it is four years plus - and one in ten will live eight years in care.
Current mortality rate experience models, based mainly on state-funded residents, should therefore be applied with caution to future self-funder lifetime care costs pricing exercises.
Finally, before any state financial support kicks in, under the current Dilnot proposals £35,000 of personal wealth - whether self-paid or financially supported - will have to be spent on local tariffed care, since the report proposes that local authorities will determine the weekly tariff cost of care. This latter figure will be used to notionally calculate when the cap has been reached and not what the actual care costs are where you live.
Local authorities at present are renowned for setting arbitrary rates for what they are prepared to pay for care at far less than normal market rates. Assuming this continues, choice too will continue to be determined by how much families can afford to top-up.
How will funders engage profitably with these issues and yet manage to isolate themselves from these downsides? Getting closer to care providers is one possibility - but who will help them do that?
Coupling health and care funding stratagems with the right mix of short- and long-term savings products - including ISAs, other investment vehicles and pensions - inside a decent advice envelope (not forgetting the power of employer-based group schemes) would give most people at least a fair start in providing for their lifestyle and protection needs in both working and old age.
GETTING AN EASY RIDE
Interpreting these outcomes in a local setting will be crucial to obtaining good outcomes, so understanding the ambitions and issues of local care commissioners and providers - including local authorities - will be vital, with plenty of scope for the arrival of new brokerage models.
However, we are not starting in a good place in terms of the fact that fewer people are entering old age with any savings to spend on anything, let alone care.
While auto-enrolment will start in large workplace pension schemes this year, giving many people access to a pension for the first time, new analysis by the Department for Work and Pensions found that the number of working-age people saving into a private pension fell from 46 per cent in 2000 to 38 per cent last year.
So, with the average pension fund at about £25,000, it does not seem there will be much spare cash around to consider setting aside much larger sums for care as part of any pension vesting and decumulation decision, as has recently been suggested.
But it seems a window of opportunity for financial services has opened and a new funding model should help to close the current perception gap by fixing the maximum amount that people will have to pay towards their own care. Enclosing it within an envelope of advice and education, including pension advice, should improve inclusion, engagement, trust and certainty while reducing complexity.
Peter Barnett is a policy adviser in the House of Lords, an advisory board member of The Society of Later Life Advisers, and chair of the Continuing Care Conference
