News

What is the new care cap, and could it benefit you?

Accessing and paying for care have become big issues. As more people reach old age, more people will inevitably need some level of support as they get older. Now, the government has taken steps to fund social care and limit the cost to individuals.

So, how does the new care cap work and who will benefit from it?

Social care reform: A National Insurance hike and care cap

In September 2021, the government announced some key changes to social care and how it’s funded.

Among the changes is a National Insurance (NI) hike. NI contributions will increase by 1.25 percentage points from April 2022 to allow the government to invest more in health and care. From 2023, the Health and Social Care Levy will be a separate contribution.

The government estimates the new levy will lead to a record £36 billion invested in the health and care system over the next three years. Some of this will go towards helping the NHS tackle Covid backlogs, as well as reforming adult social care.

Most individuals need to pay for at least a portion of their care costs should they need support. According to Which?, the average weekly cost of residential care was £681 in England in 2019/20. This figure increased to £979 a week if nursing care was required. Over a year, that would lead to bills of £35,412 and £50,908 respectively.

You may have heard from family and friends, or even in the news, of people needing to sell their home or other assets to fund their later-life care. As a result, you may be worried about the future.

The government has now introduced a care cap. From 2023, no one will pay more than £86,000 for the care they need for daily tasks. It said the reform will end “unpredictable and catastrophic care costs” to make the system fairer. However, the cap isn’t as straightforward as it seems.

What does the cap cover, and who will benefit?

Crucially, the cap will cover care costs only. It will not cover daily living costs, such as accommodation, energy bills, or food.

For care home residents, it can be difficult to understand how much of their current fees go towards care, as bills are not usually itemised. However, the Telegraph reports that a typical person in residential care costing £1,100 a week can expect just £350 of this to go towards care.

In this scenario, just £18,000 of a total £60,000 annual bill would contribute towards the cap. As a result, the person would only start to receive government support after five years, while during this time they would have spent £210,000 of their own money on non-care items.

In addition, few care home residents will survive long enough to reach the cap. As care is often a last resort or only used when an individual needs round-the-clock care, half of people do not survive longer than a year after they move into a care home.

The care cap could benefit those who remain in care for several years. However, they will still need to be aware of how they’ll pay for non-care costs, whether from their assets or income.

60% are considering an alternative to care homes

It’s not just the cost of care homes that worries people. Some 60% of UK adults, the equivalent of 31.6 million people, said they worry about moving into a care home after seeing how Covid-19 spread in them, according to an LV= survey. This number increased to 65% among the over-55s.

Around the same proportion (61%) said they’d prefer to stay in their own home.

While this can seem like a cheaper option, it does still come with costs. You may need to adapt your home to make it suitable for your needs or need a carer to visit regularly to lend support, even if family can help. These costs can still add up to thousands of pounds every year and it’s important to understand how you’d pay for them and the impact it could have on your income.

No one wants to think about becoming ill or needing more support in old age. But by making a plan and setting aside some of your money to fund it if needed, you can have greater confidence in your future. Being proactive can also mean you have more choices. For example, having your own care fund to draw on may mean you’re able to choose a care home that’s close to loved ones and has facilities you’ll enjoy.

If you haven’t thought about your care preference or how to use your assets if you need care, please contact us. We’ll help you put a plan in place that can deliver peace of mind.

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Newsletter

    What our clients say

    The majority of my time has been spent running a business and concentrating on making the correct day-to-day decisions; it was essential for me to gain advice and guidance. Phill and his team at RPG have been able to guide me and provide a balanced portfolio. Without turning to RPG, I would have been unable to arrange my long-term financial future. They have a vast amount of knowledge and have produced the results essential for when I decide to retire.

    John S, Shropshire

    Director

    Because our business was growing every year, we didn't really look at how the money we were making was put to best use. We needed some expert advice to lead us in the right direction. Anthony O'Connor has always been very helpful and approachable whilst dealing with our affairs. We are left to do what we do best: run a business. We would highly recommend anybody who is seeking financial advice to look at the services Anthony and his team can provide.”

    John and Carole, Cheshire

    Business owners

    We decided to use Phill Owen to help us with our financial planning as our savings, mortgage and life policies did not seem coordinated. Phill provided a clear plan for the future. He helped us organise our wills, inheritance matters and our future retirement. With our face-to-face catchups and regular emails or phone calls, Phill has always given us sound advice. This, in turn, has given us the peace of mind that our financial matters, now and in the future, are in good hands and in good order.

    Nick and Christine, Shropshire

    Retired Dairy Consultant and Retired NHS Therapist

    I started using RPG on the advice of my bank when I started my own limited company. They have guided me through potential pitfalls in such a friendly manner that, even though our relationship has always been professional, I still consider them as friends. This journey has gone through setting up my company, tax, VAT, insurance advice, setting up wills, buying a different house and ensuring my wife and sons are provided for, both now and in the future. It has been such an easy journey. I would have no hesitation in recommending them to anyone.

    John M, Manchester

    Aircraft Engineer

    My wife and I have been clients of Phill's for 25 years; 20 of which were with RPG Chartered Financial Planners. 17 years were prior to retirement and nine years have been post-retirement. Their involvement has been crucial to dissipate our financial and estate management concerns. RPG’s staff have been exemplary; always approachable and quick to respond. We have no reason to believe that this tremendous working relationship will not be as successful in the future as it has been in the past. We have no hesitation in recommending them.

    Paul and Pat S

    Retired Veterinary Surgeon and Retired College Lecturer

    I am a Chartered Structural Engineer and have very little knowledge, experience or understanding of financial affairs and investments. Approximately six years ago I started to think about early retirement. For the past six years RPG have provided excellent financial planning and tax-efficient advice in the form of a combination of pension and cash ISA investments, which have grown significantly to such an extent that early retirement is imminent.

    Pete, Manchester

    Chartered Engineer

    Early in 2000, we decided we needed financial advice. We contacted Phillip Owen, who created a financial planning strategy that addressed all our needs. We were impressed with his advice, and so a partnership began that has lasted. Original goals are still being met and often exceeded, and investments are successful. There is long-term financial planning in place, even for the youngest family members. I highly recommend Phill and his team.

    Mike, Westminster

    Retired Teacher and Volunteer Sector Adviser

    We were in need of an adviser who could provide a wide spectrum of advice for managing our portfolio. We met Anthony on several occasions to understand his breadth of experience, and we were very impressed. Anthony's team took the reins in consolidating and rationalising our portfolio. We are very pleased with Anthony's service and we look forward to a long-lasting relationship with him.

    Atul and Nita, London

    IT Consultant & Accountant

    Anthony O’Connor has advised me over several years about pensions and general financial planning.  I have found him knowledgeable, supportive and a person who provides good solutions . He has a “can do “ approach and makes things happen.  I have recommended him to a number of friends and they are all happy with his support and advice  He is always good humoured which is a good quality when planning ones financial affairs.

    Geoffrey Smith, Manchester

    Solicitor

    Get in touch