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Govt care initiatives will ‘mainly benefit wealthy consumers’

Carmen Reichman
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Carmen Reichman

New initiatives around funding long-term care will likely benefit only high-net worth consumers, while less wealthy people will still end up selling their homes to fund care, Zurich has suggested.

Zurich principal of government and industry affairs Matt Connell suggested new industry initiatives, such as the Association of British Insurers’ (ABI) joint action plan with the Department of Health announced last month, will predominantly benefit those with large pension pots.

Government measures such as the more widespread use of deferred payment schemes and the Dilnot cap on care costs, are also likely to fail in helping prople hold on to their homes, Connell said.

The ABI last month announced it will lobby government to relax rules around how much investors can withdraw from their pension pots in income drawdown and was also exploring how changes to tax rules around certain annuity products could benefit consumers.

Connell explained the idea was that “tax rules on income drawdown, if relaxed, would allow savers to draw down more but only to fund long-term care. Savers could use the pot to fund their income when healthy and care when not healthy.”

But he suggested this initiative will benefit only those who have built up a substantial pot of savings to be used as a drawdown pension.

Lower- and mid-net worth consumers will still likely have to sell their homes to fund care alongside their retirement if they suddenly need long-term care, he said.

Responding to the government’s initiative to facilitate deferred payments, Connell suggested that equity release lenders were “very unwilling” to provide loans to people that are not living in-house, while local councils are unlikely to take on the task themselves.

“At the moment there is no commercial market for equity release [in such situations]. I don’t think Dilnot is going to change that,” he said.

“Once somebody has gone into care [at] the lower end it will carry on as it does now,” he added.

Instead, he suggested, the council scheme will help people sell their homes over time, allowing them to get a better value.

However, he added the market could open up in 10 to 15 years time as people save more through defined contributions and auto-enrolment.

The government last year vowed to help people hold on to their homes while funding LTC, and said a new cap on care cost at £72,000 would achieve just that.

But critics soon pointed out that it is likely the cap will benefit very few of the people actually in care as it only covers the ‘care’ component of LTC, not board or living expenses.

It is also measured against the average rates set by the local authority, so the additional costs of more expensive care will not count towards the £75k limit.