Are you struggling to understand the Governments planned Social Care changes and Care Cap?

If you said yes to that question, you are not alone. The majority of people, including other advisers that specialise in this area also      find the new social care changes and care cap difficult to understand. This article breaks down the basics behind the proposed changes.

Who currently pays for Care?

The value of your assets determine what you have to pay.

At present if you have assets in excess of £23,250 you are classed as being a self-funder and will pay for your own care, whether its in your own home or in a care home.

If your assets are between £14,250 and £23,250 you will be required to make a contribution towards your care from your income and/or capital until your assets fall under £14,250. The council will top up the rest.

Should you assets fall under £14,250 you no longer pay fees from your capital, but you must continue paying from income included in the means test. The council pay the remaining cost of your care.

So what is changing?

In October 2023 the government intends to bring a new ‘Care Cap’ into play whereby once you have paid £86,000 towards care fees you will no longer pay for your care fees. However, it’s not quite as simple as it seems.

Each person that requires care will need to be assessed as to whether they meet the ‘eligible needs’ for care. Once the person needing care has been assessed as having ‘eligible needs’ the clock will start ticking until their contributions towards the cost of meeting their eligible needs hits the £86,000 cap.

So what are the ‘eligible needs’ that need to be met?

Unfortunately, this has not yet been disclosed by the Government. Therefore there is no indication which sort care costs will count towards the £86,000 cap.

If your needs are ‘not eligible’ these costs will not count towards the cap.

Daily Living Costs are the charges for living in a care home, things such as the accommodation and food. This cost has been set at £200 per week as standard nationwide for anyone in a care home. These costs will not count towards the care cap. Neither will any contributions made by the NHS.

The government have also confirmed that ‘top up payments will not count (where the person or a third party chooses to make additional payments for a preferred choice of accommodation or care arrangements).

So there seem to be a lot of costs that don’t go towards the cap, but what does?

Each local authority will have their own personal budget. For Yorkshire and the Humber, the average fee for a local authority paid care home is £533 per week. Based on £533 average amount, the following would go towards the care cap:

£200 per week – Daily Living Costs, doesn’t count towards the cap
£333 per week – Does count towards the cap

So what if my care is more than £533 per week?

On average in Yorkshire and the Humber a self-funder will pay £722 per week for care*. However, many clients in care homes pay much higher fees than this per week.

The difference between the Local Authority Care Cost and the fee actually paid will not count towards the cap. This is deemed to be a ‘top up’ where the person or a third party chooses to make additional payments for a preferred choice of accommodation or care arrangements.

This means if you pay £722 per week for care, only £333 per week will count towards the care cap and a staggering £389 per week will not. Based on the £722 per week example, the following would count towards the care cap:

£200 per week – Daily Living Costs, does not count towards the cap
£189 per week – Top Up, does not count towards the cap
£333 per week – Does count towards the cap

On that basis it will take almost 4.9 years before you reach the proposed £86,000 care cap, based on £333 per week. During this time, you could have paid an additional £183,965.60 towards your care (£722 per week x 4.9 years). After reaching the care cap, you will still be liable to pay the amounts that don’t go towards the care cap (i.e. £389 per week).

How can we help?

The planned Government changes to the Social Care Act are complicated. Our adviser Sophie Smith is a specialist in this area and an Accredited Member of the Society of Later Life Advisers (SOLLA).

Sophie is able to offer personalised advice and information. She is able to discuss your funding options when it comes to paying care fees, give you advice and help you budget properly.

*Source: Laing and Buisson Care Homes for Older People Report, 31st edition

If you would like to discuss investment strategies or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email info@fogwilljones.co.uk. Our Independent Financial Advisers are qualified to provide advice in the areas of retirement planning, tax planning, savings, inheritance tax, investments and protection.

Please remember that the value of investments may fall as well as rise in value.

Bank of England base rate increase – is it good news for savers?

December 2021 saw the first increase to the Bank of England base rate in over three years, when it rose from its historically low level of 0.1% to 0.25%. Any change to this rate is important as it can often influence what borrowers pay and how much savers earn.

Whilst undoubtedly an important development, it is fair to say that it was not surprising. Prices had been rising sharply in recent times, pushing the rate of inflation above 5%, and increasing interest rates to dampen demand somewhat is one tool at the Bank of England’s disposal.

Assuming inflation persists, it is likely that further increases to the base rate will be on the cards in the future. Predicting when these might occur is difficult, but I think it is a fairly safe assumption that there will be at least one more rate rise in 2022.

This is an important consideration for borrowers, particularly those accustomed to low interest rate products that can vary, which may add to a ‘squeeze’ on household spending for the foreseeable future. On the other hand, would it be right to assume that the higher interest rates will be passed on to savers, therefore starting to see an end to the years of very low returns on cash products? Not necessarily.

Whilst banks and building societies were quick to pass on the higher interest rates on their mortgage products (many of which are linked to the base rate), a significant number have not done the same with their range of savings accounts. Of course, it would be unfair to tar all banks or building societies with the same brush, but this does tend to be a theme whenever there are amendments to the Bank of England’s base rate.

The best ‘easy access’ savings account is currently 0.70%, and the returns offered on similar products is actually significantly less than this with the so-called ‘well known’ banks and building societies. If you can tie your funds up for three years or more the best rate at present is 1.85% (Source: Money Saving Expert January 2022).

There is no denying that these rates are somewhat better than those available last year, so in that sense any improvement is reason to be more cheerful. But this cheer is dampened somewhat when taken in the context of the rise in the cost of living we have all seen, evidenced in the inflation rate exceeding 5%. There is scope for inflation to rise still further this year, adding weight to the argument that more interest rate rises may be required in order to combat this.

So, is it good news for savers? In one sense, yes – rates are creeping up higher with some institutions now, albeit at a slow pace. However, whilst returns on cash savings remain significantly below inflation – which is likely for the foreseeable future – the ‘buying power’ of your money is likely to be impacted by investing in cash. The longer this persists for, the more it can be an issue in the future when you come to rely on the funds.

So for those who are looking to make a ‘real return’ on their hard-earned money, it would still be prudent to consider alternatives to traditional cash savings whilst the current low interest rate environment persists.
Savings accounts still have their uses, especially for money that you’ll need to get your hands on soon. But if you’re planning to put money aside for the medium to long term, it is still very much the case that it might be better to invest.

If you would like to discuss investment strategies or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email info@fogwilljones.co.uk. Our Independent Financial Advisers are qualified to provide advice in the areas of retirement planning, tax planning, savings, inheritance tax, investments and protection.

Please remember that the value of investments may fall as well as rise in value.

Zopa closes all of its 60,000 retail accounts

Zopa closes all of its 60,000 retail accoun

Peer-to-peer lending (P2P)

P2P lenders, like Zopa, act as a financial middleman, allowing investors to put in cash to be lent out to individuals and businesses. P2P was designed to provide loans to areas where traditional banks had retreated whilst offering investors the opportunity for higher returns than traditional cash deposit accounts in an ultra-low interest rate environment.

The potential for higher returns than you might typically expect from traditional cash savings accounts has always come with a risk – P2P investing doesn’t come with the safety guarantees that mainstream bank and building society savings do.

This once niche investment sector expanded quickly – around £6 billion of P2P loans were made in 2019 and this in itself has led to problems within the sector, notably liquidity and defaults.

The P2P market and Covid-19

As a consequence of higher numbers of borrowers defaulting during the pandemic and more investors wanting to access their savings to use the cash, many P2P firms haven’t survived the liquidity crisis of the last couple of years; Around 15 per cent of Rate Setter’s (a British P2P company established in 2009) customers attempted to withdraw funds from its platform in just a few days in mid-March 2020, causing a long backlog in payouts and they went on to close all of their 45,000 investor accounts in April 2021.

The direction of travel seems to be for the P2P sector to seek funding from large institutional investors rather than individual retail investors. Experts have commented that P2P might soon be simply “institution to peer”.

Zopa

Zopa is a British financial services company which began as the world’s first peer-to-peer lending company in 2005.

In December 2021 they closed all of their 60,000 existing investor accounts. Investors will be able to access their money penalty-free by 31 January 2022 at the latest. Zopa have already begun the process of buying back the loans themselves in order to repay retail investors their capital. Once loans are sold, the money will be automatically placed into clients own holding accounts with Zopa. Investors can then either withdraw the cash or, if they are ISA customers, they can transfer to a new ISA provider. No interest will be applied by Zopa to money held in the holding account.

If you would like to discuss any of the issues raised in this article or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email info@fogwilljones.co.uk.

Please remember that the value of investments, including those in a stocks and shares ISA may fall as well as rise in value.