While the introduction of the care cap (£72,000) has been widely anticipated, Partnership warns that many consumers may need to spend the equivalent of the value of their home before they reach it. The typical English homeowner would need to spend £177,500 on social care costs over 6.13 years before they hit the cap* – this is equivalent to 92% of their housing equity (£193,426).
Under the new system, while a person in England may spend £28,964 on care each year, only the amount the local authority would agree to pay (£23,764) less ‘hotel costs**’ (£12,000) is taken into account. Thus, just £11,764 each year would be counted towards the cap which means it is possible they could spend £177,500 over 6.1 years before reaching the cap and receiving any state contribution.
Those in Yorkshire (147%) would need to spend the highest proportion of their housing wealth on care compared to those in London (40%) and the South East (68%) who are significantly less affected. However, people in the West Midlands (£211,000) would need to spend the most before they hit the cap.
|Cost of Av Home***||Cost until Cap Reached||Difference||% of housing equity||Years until Cap Reached|
|East of England||£191,989||£167,000||£24,989||87%||5.3|
Thomas Kenny, Head of Technical Pricing, Partnership Commented:
“In principle, the care cap is an excellent idea. However, as only the amount that the local council is willing to pay – less the hotel costs – is counted, people are likely to pay significantly more than the £72,000 they anticipate. Indeed, someone living in England might expect to pay around £177,451 over more than six years before they are eligible for any state contribution.
“While the Government has said that no one will be forced to sell their home, this is the largest asset that many people have and it may well be their only option. To avoid watching the capital that they have built over a lifetime being eroded by costs, they should speak to a specialist independent financial adviser who will be able to recommend the best course of action.
“This may include using a care annuity which is the only product specifically designed to pay a person’s care fees – irrespective of how long they live – which means they can have the peace of mind that they can meet their costs and leave an inheritance if they so wish.”