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.”