Will we be getting more help to pay for a care home?

On the face of it, plans announced by the Government this week appear to help thousands of families facing astronomical costs when an elderly parent needs nursing care. But in practice the proposals in this week's White Paper on social care won't provide any financial assistance to the 400,000 elderly people already in residential care, or to families who will need these care services in the near future.

Critics say that while the Government has made "soothing noises" which will be welcomed by many, it has – yet again – failed to back them up with concrete details on where the money will come from to tackle the care crisis.

Two proposals made the headlines. The first is that by 2015 councils should offer loans to all those needing care, so fewer people will be forced to sell their homes when they go into care. Instead, these loans will be repaid from the proceeds of the house sale on death. What wasn't as widely reported is that similar loans are already available, though usually on a far more limited basis.

The other key point was that the Government supported the principle of a "cap" on care costs, limiting the amount any individual pays. Currently, some families are hit with bills of £100,000 or more, wiping out their entire life savings.

But there is a stark lack of detail about how either proposal would work. We don't know what the cap will be set at, or when it will be introduced. Andrew Lansley, the Health Secretary, admitted there was no guarantee that there would even be enough money to deliver it. Similarly, it is unclear what interest rate councils would charge on care fee loans, or what would happen if the debt exceeded the value of the family home.

It is also worth pointing out that what most people object to is the fact that their home is used to fund care costs. It isn't the timing of the sale that is the sticking point.

To make matters worse, it could be at least a further two years before the Government unveils more detailed funding proposals, in the next Comprehensive Spending Review. This is likely to be just ahead of the next general election, and it could be another two years before these proposals make it on to the statute book.

In the meantime, families are effectively left in limbo, unable to plan ahead and potentially lulled into a false sense of security about what future care costs may be.

According to Chris Horlick, a care specialist at Partnership, the annuity company, this could actually worsen the current crisis if fewer people seek advice about the best way to fund care costs.

Janet Davies of Symponia, the professional body for financial advisers specialising in care fees planning, said: "By deferring the decision-making process the Government is, quite frankly, betraying its ageing citizens."

Currently, those who need long-term care – whether it is help at home with day-to-day activities or more specialist care in a nursing home – face a financial assessment to determine their ability to pay. This has been called "the meanest of means tests", as those with assets of more than £23,250 – which in many cases will include the value of their home (see opposite) – are deemed "self-funders" and will be required to pay the lion's share of costs themselves.

Given that the average cost of care in a nursing home is £26,000 a year, and that in the South East it can top £50,000, it is not hard to see how people's assets are soon depleted, and why a "cap" would appear attractive.

It would address one of the iniquities in the current system, whereby those with conditions such as Alzheimer's, who may need years of social care, can pay bills running into hundreds of thousands of pounds, while those with conditions such as cancer, where the treatment is primarily medical, will have the bulk of the cost met by the NHS.

But Mr Horlick said there was a danger that the half-formed proposals about a cap on costs could provide false reassurance. "Many will have read reports that the Government will pick up all care costs once they have paid the first £35,000. But this is simply not the case," he said.

The cap, if it is ever introduced, may be set at a far higher level, possibly as high as £100,000. An independent report by the economist Andrew Dilnot, published last year, suggested a £35,000 limit. But while the Department of Health has accepted the proposal in principle, it is the Treasury that will decide where the cap is set.

Many people don't realise that the cap would cover only the "personal care" costs, such as help with washing, eating, etc. It wouldn't include any "hotel" or "residential" costs, which can account for the bulk of nursing home bills. Mr Horlick said that in many cases the cost of accommodation in some nursing homes could exceed the standard living allowance set by local authorities. If people want choice about where they stay, they are likely to have to top up these allowances themselves.

Research by Partnership showed that the average resident living for four years in a good-quality nursing home in the South East would see care costs over the period cut only from £170,000 to £150,000 if this cap were introduced. For most, this is still a significant sum to pay, which could be funded only through the sale of their home. The average person going into a nursing home lives for two years and three months. These people are unlikely to benefit from the cap, as their care costs are unlikely to breach the £35,000 limit.

Much of the debate has looked at how people can avoid selling their home to meet care costs. But it is clear, given the precarious nature of many local councils' finances, that it is often in a person's interests to use what assets he or she has in order to ensure a decent standard of care in old age.

The question is, what is the best way to achieve that? There may be advantages in the council putting a charge on your home, rather than selling it initially. The property could be rented, and the estate will benefit from any increase in property prices. The interest charged by the council is likely to be far less than that charged by a commercial lender offering an equity release loan, for example.

But a loan from the council could restrict the choice of homes available – particularly if there are concerns that care costs could exceed the value of the property. For those needing care it can pay to seek advice. Andrew Dixson-Smith of Care Fees Investment, a firm of specialist advisers, said: "One in four people who 'self-fund' runs out of money, so it pays to plan. An adviser should ensure you are claiming the correct benefits as well as helping you plan the best way to meet costs, whether it's via an annuity, equity release or using savings or other assets."

Sourced from The Telegraph, 14th July 2012.