Reach the new social care cap

　　Just 8% of men and 15% of women entering care aged 85 today are likely to reach the new social care cap
 

　　

　　Care cap will offer a safety net that will prevent individuals from facing catastrophic care costs. It will not replace savings as the key means of paying for care

　　There are significant regional variations in expected care costs and the time it is expected to take for the care cap to apply

　　There is no unique product that is suitable for all consumer long term care needs

　　Proposed new Pension Care Fund (PCF) could help people to save for long term care

　　A new report, How pensions can help meet consumer needs under the new social care regime,  issued by the Institute and Faculty of Actuaries (IFoA) finds that just 8% of men and 15% of women entering care aged 85 today are likely to reach the new social care cap that is being introduced in 2016.

　　There are three types of care costs: daily living costs; local authority set care costs; and top-up care costs. The cap only applies in relation to local authority set care costs. The report found that, although the cap is set at ?72,000, on average people are expected to spend around ?140,000 on care costs before reaching it, which can increase to around ?250,000, even allowing for the cap, if an individual is in long term care for 10 years.  However, it also found significant regional variations in expected care costs and the time it is expected to take for the care cap to apply.

　　London: an individual entering a residential care home aged 85 is expected to reach the cap in around 4 years and incur a personal cost of around ?117,000 before reaching the cap.

　　West Midlands: an individual entering a residential care home aged 85 is expected to reach the cap in around 7 years and incur a personal cost of around ?170,000 before reaching the cap.

　　NB: The cost of care in London is higher than in the West Midlands, but the time taken to reach the cap is shorter which has a dampening effect on the total personal costs incurred.

　　The cap, which is planned to be set initially at ?72,000, will, the IFoA says, act as a safety net that will prevent individuals from facing catastrophic care costs. However, it will not offset or replace savings as a key means of funding care. The IFoA believe that message needs to be made clear by all parties involved in advising and planning for later life income needs and long term care, including the Government and the financial services industry.

　　Thomas Kenny, one of the authors of the IFoA's report said;

　　“Recent research data shows that 1 in 3 women and 1 in 4 men aged 65 today is likely to need care.  Yet the average disposable income for retired households was ?18,700 in 2011/12, which is below the level required to fund the average long term care costs before reaching the cap. Anyone who is expecting that the cap will pay for care is in for a shock. The cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.

　　“Second to property, pensions are the largest wealth asset for most people.  Pensions are largely understood, there is an existing savings framework for them and, with the right tax incentives and flexibility, there are products that could help people to meet any care needs that they may have in the future. However, we also found that there is no silver bullet – no one product that would suit everyone’s personal circumstances to help them meet care costs. In the report we consider a number of existing and new products which, with the right tax incentives, could help people plan ahead, including a new Pension Care Fund.”

　　The Pension Care Fund (PCF) would be a ring fenced long term care savings fund that would sit within the framework of a defined contribution pension scheme.  The savings would be treated for tax purposes like a pension and any money accumulated that was not used to fund care could be passed on, free of inheritance tax*, for use as a long term care fund by a spouse or other beneficiary.

　　*Based on the authors understanding of current tax rules.
　　New report from IFoA is the first to look at long term care funding in new flexible pensions regime.
 

　　Please also refer to the accompanying summary version of the full report for additional information and supporting data. For further comment, or to answer any questions that you may have please contact Karen Wagg at the IFoA on 077 255 58 551 or by emailing Karen.wagg@actuaries.org.uk
 

　　Editorial notes:

　　All figures quoted in this release are sourced from How pensions can help meet consumer needs under the new social care regime, from the IFoA.
 

　　Editorial notes:

　　About the Institute and Faculty of Actuaries

　　1.    Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

　　2.    Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

　　3.    Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

　　4.    The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.
 

　　考试励志名言：当人生面对许多选择的时候，我们需要谨慎；当我们没有选择的时候，就把压力当挑战，给自己一个信心：这个世界上只要有人能在这条路上走得很好，我就能走好！
 

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