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Care funding needs financial advice

The Care Bill is reaching its final stages but the Government is still resisting making it mandatory for self-funders to be referred to professional financial advisers to review their options.

New adult social care rules are more likely to come in with a bang than a whimper. With the cost of care capped for the first time, all those paying for their own care will be motivated to get the meter ticking as soon as they can.

The changes have the potential to generate a huge increase in demand for specialist care advice. From 2016, local authorities in England will become the single point of entry to the care system and will not only have the power to set the meter running but also a responsibility to ensure people have access to independent financial advice and information.

Why a bang? It is because the changes will no just impact on the many thousands needing to access care for the first time every year, but many of those already using the system. Of more than 400,000 older residents in independent sector care homes in the UK, around 175,000 (43 per cent) paid the full costs and a further 56,000 (14 per cent) paid some of their care costs. And that does not include the 325,000 self-funders paying for care in their own homes.

There is no escaping the financial implications of needing care and, with the Care Bill now through the committee stage of scrutiny in the House of Commons, it is no surprise to find forward-thinking financial advisers and firms starting to prepare for the beginning of the new era. In many cases that includes targeting later life qualifications and organisations such as SOLLA is already responding to rising demand for its specialist training.

Although the new rules are a comprehensive overhaul of how adult social care is delivered in this country, financial matters are at its heart.

Already the squeeze on local authority funding is impacting on the amount they can spend on care. There is real concern that in future care homes could face financial problems when self-funders start to twig that the significant sums they are paying – of which only a portion will count towards the care cap – are helping to subside other residents.

Ultimately, the Government wants to encourage people to take responsibility for their own care costs in later life and to protect those needing care from running out of money.

From research carried out for us by YouGov we know that nearly two-thirds (63 per cent) of people said they would definitely or probably seek financial advice if faced with significant care costs.

In reality, decisions around care for a loved one are too often made in haste which can lead to disruption later. About a quarter of self-funders exhaust their resources resulting in uncertainty for the care home resident and a huge extra cost to local authorities, estimated to be about £425m in 2011-12.

Like peers in the House of Lords last year, MPs currently debating the Care Bill have highlighted the need to get financial advisers more closely involved in later life planning, to help people understand their options and make good decisions.

It is frustrating that the Government has rejected attempts to obligate local authorities to refer self-funders to regulated financial advisers within the Bill itself. A recent Apfa survey suggested 58 per cent of advisers would like to be included if councils had a duty to prepare lists of firms offering regulated advice.

More positively, there is a requirement that councils set up services to provide some information and advice which must include how to access independent financial advice, but under the wording such advice does not have to be regulated.

Shadow minister for care and older people Liz Kendall said this raised the possibility of “some kind of misinformation scandal” if there was no legal requirement to make sure the advice is given by properly trained people and was of sufficiently high quality. She said she was happy for organisations such as Age UK to give information and advice on services “but we only want financial advice to be given by properly regulated independent financial advisers, otherwise it will be a big disaster”.

The Government response was that it believed regulated advice would be suitable in some but not all circumstances. Care minister Norman Lamb did accept the need for a public awareness campaign at a national and regional level to make sure the changes were widely understood. And he did accept the need for plans to clarify the role of professional advice outside the wording of the law, part of the statutory guidance which will be decided in the coming months.

One of the Government’s ambitions for the reforms is to encourage the development of a market in financial products that can help people plan for and meet future care costs. In recent weeks the Association of British Insurers and the Department of Health signed a statement of intent that should stimulate product development in a range of different areas, from pensions and annuities, to housing equity, to protection.

One fact that the Government needs to take on board is that financial products are inseparable from financial advice that can explain what they are, how they work and why they are suitable.

We know from research when developing our new care annuity that many more people could benefit from such products than currently buy them and that is backed up by other studies too. An interesting question would be, if there were no advisers, how many clients would buy immediate needs annuities? It might be very few because, without the knowledge and expertise of an adviser, they would rarely be considered as an option.

Just as nobody expects our care problems to sort themselves out, nobody should expect products to sell themselves. As the Government starts to fill in the details of the new rules, it is clear it needs to stimulate demand for professional financial advice if the care market is going to achieve its full potential.

Advisers, we know, are up for the challenge but need to get a move on to make the best of what’s to come.

Stephen Lowe is group external affairs and customer insight director at Just Retirement

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