This week, I had intended to examine some of the issues raised by Gill Cardy’s recent column on why it is important to “be upfront about being restricted”.
Gill made some useful points. It was also interesting to read several readers attempting, in the comment section below the online version of her article, to blur the distinction between genuine independence and restricted status.
Not least Alan Lakey, who had a shameful and a-historical dig at former Aifa director general David Severn for “pushing through depolarisation changes” while at the FSA.
Those of us with longer memories than Alan will recall the OFT declaring polarisation to be anti-competitive in 1999, leading the Treasury to tell the FSA to depolarise the IFA sector.
The original FSA proposal in January 2002 was that IFAs would have to operate a “direct payment system”, in other words charge fees. If they wanted to retain a commission-based remuneration option, they would henceforth be dubbed as “authorised” financial advisers, or AFAs.
Ironically, it was Severn at the FSA who, together with the then Aifa boss Paul Smee, as well as IFA Promotion and IFA-supporting life offices, cobbled together the menu system compromise, which bought a decade’s worth of further commission earnings for Alan and his mates.
Anyway, what I really want to discuss is the Government’s new plans for a £75,000 cap on social care costs, funded by a freezing of inheritance tax limits until 2019.
What concerns me is less the criticism voiced in some newspapers about the Government’s alleged “betrayal” of its commitment to raise the IHT threshold to £1m. To be honest, I had always thought that particular pledge to be unnecessary, expensive and aimed at a tiny proportion of the Tory party’s better-off electoral college. Only an additional 5,000 estates a year will be affected if IHT is frozen at current levels until 2019.
No, what worries me is that if accurately reported over the weekend, this new proposal will be of little use to the vast majority of the UK population, whose elderly parents may find themselves in need of social care towards the end of their lives.
My wife looks after elderly people ranging in age from late 60s to early 90s. One of the by-products of her new line of work is that I now get roped in to spend an hour or so having tea and cake at quite a few sedate Sunday afternoon birthday parties.
It’s actually rather pleasant. I recently met an ex-detective who worked with the Flying Squad in the 1960s and was involved in the hunt for the Great Train Robbers. Fascinating stuff. I also had the privilege to chat with extremely brave sailor who served on the WWII Arctic convoys to Archangel and Murmansk, in freezing weather and always at risk from German submarines.
What seems to happen, however, is that you tend to meet someone, then attend a birthday party a few months later and find out that they’ve just gone into a home. A few months or a year after that, you go to another party and are told they have passed away. In the past year, that has happened four times, enough to suggest these are not isolated incidents.
In fact, when writing this column I did some research and found that the average length of time in social care in a Bupa home is just two years. Given that the Government’s proposed £75,000 spending cap is on the social care element of a home’s cost, it means that only £350 or about £18,000 a year, of a typical £500 weekly residential home bill counts towards that upper limit. That’s four years before you qualify for state help.
If their only asset is a home worth more than £123,000, they won’t have much choice but to sell it and use the money anyway. If so, it means the vast majority of elderly people will be unaffected, because they will either have to sell up, as now, or die before they benefit from the cap.
Moreover, assuming a pensioner’s assets have been drained down to £123,000 and they have spent that £75,000, reports suggest any remaining assets will continue to be means-tested down to £14,000. So the full cost will not be met until a pensioner is literally on his or her uppers – and even then, the state will only pay for basic care. So if your private care home bill is higher than a council one, either your family steps in or you move out.
The Government is presumably hoping that now it has introduced an element of predictability in terms of potential maximum costs that citizens will need to pay themselves, the insurance industry will step in with products that allow them to meet those costs should they need to. I’m not sure that will happen, although I am prepared to be told otherwise.
Overall, this proposed measure sounds to me like a potential PR disaster in the making. I used to think that Gordon Brown had a tin ear for personal finance issues. It now seems as if George Osborne has a similar hearing defect.
Nic Cicutti can be contacted at firstname.lastname@example.org