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Ex-care minister warns LTC reforms face ‘spectre of misselling scandal’

Former care minister Paul Burstow says the Care Bill risks the “spectre of a misselling scandal” unless regulated advice is given a more prominent role.

Speaking to Money Marketing, Liberal Democrat MP for Sutton and Cheam Burstow says councils offering deferred payments schemes without regulated advice could be open to legal challenge if people lose money.

Burstow introduced the draft Care Bill, which proposes major reforms to long-term care funding including a £72,000 cap on overall costs from April 2016, as minister but was replaced by Norman Lamb in September 2012. Last year he chaired the joint scrutiny committee of the Care Bill.

The local authority deferred payments scheme allows long-term care funders to use equity in their home to pay for care costs and repay it by selling their home when they die.

Burstow says: “The big concern I still have is the Government is not seeing the deferred payments scheme as a true financial product.

“If we do not ensure there is proper regulated financial advice in place we will have accusations and potential challenges. Government still needs to do more to put a safer regulatory framework in place around deferred payments.”

Burstow says the lack of deferred payments advice could lead to a misselling scandal similar to contracting out of the state earning related pensions in the 1990s.

Thousands of workers were advised to contract out of Serps and put more money in personal pensions but advisers were subsequently sued for billions for poor advice.

He says: “There is a spectre of a misselling scandal so it would be prudent to learn the lessons of the past. Courts would probably feel there is a parallel with equity release.

“When the last Conservative Government changed the arrangements so people could opt out of Serps, savers were doing it without adequate pensions advice and losing money as a result.

“In the end there were compensation payments so we should draw a lesson and try and avoid it in the first place.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. No need to worry old boy – provided:

    1. You don’t let the banks anywhere near.
    2. You ensure that the Regulator makes this advice comply fully with RDR rules. Level 4 & no commission.

    Any mis-selling worries can therefore be put behind you.

  2. In my response to the consultation on the Care Bill last summer, I recommended that the Equity Release Council should be asked to create a separate category for Local Authorities and that they should be bound by all the same rules as other Equity Release Providers. After all, as the new scheme from April 2015 will carry interest (at a rate we don’t yet know) how is that going to be different to commercial Equity Release?

  3. goodness gracious 15th January 2014 at 4:52 pm

    Not perhaps the greatest mis-selling analogy Mr Burstow. Those advised to opt out of SERPS that are under 60 have had a result as their SERPS pension will not be paid by the government following flat rate pension introduction. I admit those people were not advised to take out an appropriate personal pension because no one in their right mind would trust governments of any persuasion to keep their promises, but more along the lines of ‘you could be better off’. As there was no evidence at the time they would be better off, it was deemed mis-selling. But hey ho, now it ppears that those with APPS and those in state sponsored DB schemes are the real winners out of flat rate pensions. Those earning over 25k p.a. that kept in SERPS and S2P are the losers. Best try another scandal for comparison.
    Anyway, Local Authorities treat care home provision to those with assets as a cash cow. If they get custody of client’s assets (those with no dependants) they liquidate, pay 1.5% interest and invest the proceeds in bonds and even stock, any profit they take themselves. This is a scandal! Not insisting that Financial Advice is given from someone who has the requisite exams, preferably with SOLLA acreditation is another.
    Local Authorities mainly do what is right for them, not the unfortunate person in care. This is another scandal, but how can it be mis-selling?

  4. Having advised on LTC more than 20 years, using Equity Release is rarely an appropriate solution. Quite the opposite as it often then enables the Local Authority to legally avoid its obligations to provide financial support. Remember the property is generally a non assessable asset.
    The best solution is for Local Authority Social Services and PCTs etc should be required to signpost families toward SOLLA. When families are in crises over care for an elderly relative its critical that the guidance they receive whilst on that steep learning curve comes from individuals whose objectives are aligned to their own. SOLLA

  5. Peter Fisher makes some very valuable points. However, SOLLA are but one body of advisers, other professional bodies such as Symponia also have a national network of highly qualified financial and legal advisers.

  6. Before Messrs Fisher & Davies get too self-satisfied allow me to point out that often the best solution to LTC does not involve a product or Nursing Home at all.

    For those with the wherewithal (mostly my sort of clients) the best solution is to stay in their own home with full time carers. This is a considerably cheaper option that a care home and the clients are happiest in their own homes. Over the last few years I have sorted this for a 92 year old, one client in his early 90’s that lived to one hundred and a current client still going strong at 101 – all in their own homes.

    All abhorred the idea of a home. The current horror stories surrounding them don’t exactly make them a preferred option!

    The result of my advice was that traditional Financial Services solutions didn’t enter into it. The clients’ families were happy, the clients were happy and my fee was negligible.
    Can those above (including the minister) claim the same?

  7. goodness gracious 16th January 2014 at 2:22 pm

    Harry, you are so right, if advice on where the best place to live were heeded, most would live at home, then the house value does not come into it. However, there are those who cannot live at home, probably through an inability to walk, no the necissarys etc. and for those poor people, residential homes are needed.
    I find the children that complain the most about their supposed inheritance being spent are those who do not attempt to help their parents at all, often living many miles away, but are good at critisism. remaining at home means some outside help, over and above the local social services provision.
    Sadly, the L.A. oftern does not look into the all the facts before recommending a home, if they think there is a lot of equity in the home, they are more likley to recommend a residential home as long as it does not cost them.

  8. Jeremy Davies is clearly trying to wind me up! How many times do I have to point our on various forums that Symposia is NOT a professional body and whilst some (misguided) SOLLA members may have bought licences, Symposia is not a byword for professionalism. Symposia is a commercial organiation selling licences to Adviser wanting to benefit from their marketing. SOLLA is the only body – a not-for-profit consumer protection organisation – that vets Advisers, their qualifications and ethics, demanding the very highest possible standards.

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