The upcoming care cap and the need for proper later life planning

The care cap first proposed during the coalition government is set to come into effect from April 2016. The idea behind the cap – set at £72,000 – is to limit the amount of fees you pay in your lifetime towards care after you turn 65. This in turn will give you greater freedom to plan for your future.

A survey by Symponia, conducted last year, however, revealed some serious misunderstanding of the real implications of the cap by clients. At least a quarter of clients were unaware that the cap was even being put in place, whilst over two thirds had interpreted the £72,000 limit incorrectly, expecting to pay no more than that figure over their lifetime.

The reality is somewhat different for three main reasons. Firstly, the care cap applies solely to the direct cost of care and is only applied at the Local Authority rate. This means that for those in a care home whose charges are higher than the rate set by the LA (i.e. most of them), the actual cost of care is likely to be considerably higher. Secondly, the cap only begins accumulating at the point that your care needs have been formally assessed as either “Critical” or “Substantial”, and you may need support before this happens. Finally, irrespective of the amount a care home is charging you, the government works on the assumption that you will pay in the region of £12,000 per year towards accommodation.

In real terms, therefore, the amount you can expect to pay overall for care is notably more than is accounted for through the official calculations. The average care home charges around £100 per week more than the Local Authority rate. Totalled up over a year, and coupled with the £12,000 yearly accommodation costs, this could mean over £17,000 more to spend annually on your care than is covered by the care cap. The average person is expected to have reached the cap limit after around five years of care, leaving a sizeable chunk left to pay every year after that for as long as you live. As James Lloyd of think-tank Strategic Society puts it: “Few people will experience it as a cap. It will be much more like a co-payment”.

What this means in terms of later life planning is that it is just as important as ever to plan financially and save regularly for the future. Don’t let government talk of capping payments lull you into a false sense of security. If you don’t set out clear steps for your future needs, it could mean struggling to cope with the cost of care at a time when you should be enjoying your later years.