In the least surprising of her statements since becoming the Chancellor, Rachel Reeves announced she is scrapping reforms to adult social care in England that were due to come into effect in October 2025 (1). These reforms had been conveniently delayed by the previous government, until after the election. In the run up to the election, no politicians seemed interested in having a discussion about a subject which had cost Teresa May so dearly previously.
These reforms would have capped the costs people have to pay towards their care over their lifetime, and increased the generosity of means-tests that determine who qualifies for support with care costs from local councils (for those yet to reach the cap). The decision not to go ahead will save the government £1 billion next financial year, according to the Institute for Fiscal Studies.
However, scrapping these reforms means the risk of high social care costs will remain with individuals. Those who end up with the highest care needs will continue to pay the most. Unlike other risky areas of life, where insurance (such as life or house insurance) or state provision (such as the NHS) allows major risks to be shared to a greater degree, there are no companies offering insurance against this potentially enormous cost.
For what it is worth, my view is that this is a particularly unfair policy. There is state provision and insurance for most diseases, but, if you suffer from something that results in your having to have care for a long period of time, you are left on your own. The current rules state that, as long as you have assets of more than £23,250, you have to pay for care. The rules are, of course, more complicated than this, as there are times when your home can be disregarded from the calculation, but there is also a formula which means that your income counts towards the £23,250. The potential for the cost of care to reduce your legacy is, for most people, far greater than the damage which inheritance tax can do.
In our part of the world, annual care costs are usually between £60,000 and £80,000, so an extended period of care can be particularly damaging. The good news is that only around 1 in 3 people need an extended period of care – it’s rare for anybody to need care of more than three years.
The scrapping of the reform means that, more than ever, your financial plan should include a plan for the cost of care, should it be needed. Many of our clients are happy for their homes to be their insurance policy, and the value of their home will usually outweigh the potential care costs. However, others have specific legacy goals, and these can include leaving the home to particular beneficiaries. It’s generally a bad idea to be rushed into the sale of a property, so many of our clients retain sufficient funds to cover the cost of the first year of care, giving their families plenty of time to sell the home in an orderly fashion.
The solution is to have a plan for the cost of care, and to ensure that it can be implemented. This second requirement usually means making sure that powers of attorney are in place, which can be used, if care is required.
We know that ignoring a problem won’t make it go away (I can hear my children sighing as they read this!), and this is clearly the case for care. If you would like us to help you to make a plan for care, please contact us.
(1) Rachel Reeves report https://ifs.org.uk/articles/ifs-response-rachel-reeves-spending-audit
Philip Wise | philip@sussexretirement.co.uk
Managing Director and Chartered Financial Planner
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The Financial Conduct Authority (FCA) does not regulate Inheritance Tax Planning or Trust Advice.
