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Nic Cicutti: A long-term care PR disaster?

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 nic@inspiredmoney.co.uk

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  1. Nothing shameful in reminding people that up until depolarisation there was a clear distinction between ‘independent’ and ‘non-independent’. Consumers had grown to understand that it meant an ability to use any provider.

    It didn’t mean that one was superior and todays foul broth of differing descriptives still doesn’t make any one sector superior.

    Depolarisation was the first step in a considered dismantling of the adviser community. Dressing it up as uncompetitive and offering freedom of choice for consumers was disingenuous at best and downright dishonest at worst.

  2. It’s worse than that Nick. Care homes expect local authorities to set their Social Care rate at around £200 a week. Therefore to hit the £75,000 cap you need to live for 375 weeks or over seven years.

    So when Jeremy Hunt announced this with the claim that it will prevent people having to sell their homes we can only conclude that either; he doesn’t understand his own policy, he’s not telling the truth or he knows so little about the population of the country he serves that he believes that everyone is as wealthy as he is.

  3. Good article re. the elderly care Nic. Thanks for pointing some of the devil in the detail out, as I knew the announcement was not all it was cracked up to be.

  4. Nic old boy

    You’ve got a secret love fixation on Alan Lakey – there is not a week goes by without you having a pop.

    Bit like hitting the one you fancy in the playground cos you’re too shy !!

    You silly old muppet you !!

  5. I regularly exchange news and (occasionally conflicting) views with Alan Lakey. To my knowledge, he has no problems at all with AC on investments in place of commission, quite the opposite.

    As for depolarisation, are you seriously suggesting Nic that the current buggers’ muddle of intermediary classifications is an improvement on what we had before?? On various forums I have invited David Severn if he now thinks so and to explain just how. So far, he’s offered no comment.

    When he said all those years ago that “polarisation is past its sell-by date”, I didn’t then and still don’t for a moment believe that he was doing anything other than reciting the FSA’s official party line.

    And the FSA’s insistence on classifying intermediaries as either independant or restricted is barmy too. Why can’t somebody be a WoM market IFA just because s/he doesn’t advise on or keep up to speed with every financial product known to man? Just how many firms possibly can? Will all IFA’s who have to opt for restricted status just be lumped into the same bracket as the product-floggers at the banks and building societies? How will that help consumers differentiate between the calibre of advice they’re likely to receive from someone at the bank and somebody who, until relatively recently, was a WoM IFA but is no longer allowed to call himself such just because he doesn’t advise on ETF’s, VCT’s, EIS’s and all sorts of other minority products?

    So, Nic, rather than using your position to pursue what appears to be some sort of puerile personal vendetta against Alan Lakey, can you not accept that different people see the world in different ways and that nobody has a monopoly on the truth?

  6. Apart from the unprofessional dig at Alan Lakey, one little nugget was interesting; Nic C says that the Treasury TOLD the FSA to depolarise. ( which they duly did).

    In my Level 4 Regulation and Ethics module, it mentioned that the FSA was duty bound to listen to the Treasury. Errr not any more it seems; capped off by that zealot Sants, thumbing his nose at the TSC, despite rafts of reasonable comments about the negative effects of RDR from people who had far more knowledge than him and his aparachiks…..pretty much all of whom have deserted the field of slaughter to ply their ‘expetise’ ( don’t make me choke) elsewhere.

  7. I’d like to add my tuppence worth too.
    I’m afraid Alan’s protestations are a bit hollow. Droves of Network members claimed to be independent. We now see the networks pushing their members into tied models. (See current news). Obviously they can no longer enjoy the cosy kickbacks from life offices, which skewed advice to the highest paying commission options – steered by the Network.
    As far as IHT is concerned – Nic you perhaps don’t live in London, but in London and its suburbs a £1million house is by no means unusual. Furthermore assets have usually been built up by assiduous and carful husbandry – on which taxes have already been paid. So if you will there is a pool of money on which taxes have already been paid (at varying rates over a considerable time) having been built up by often the self-sacrifice of the careful. This is now taxed when they die – to the advantage of the profligate who just spent during their lifetime?
    Yes I admit it isn’t black and white – but that applies to both viewpoints.

  8. Nic, I used to enjoy your column and your willingness to speak your mind despite knowing you would upset a few IFA feathers. In fact I was one of your few fans!

    But these digs at Big Al are doing you no favours at all so please them for the playground and not for a supposed professional trade publication.

  9. Good article, my Mum has been in a residential care home for five years having suffered a series of strokes aged just 66. Ironically she worked all her life nursing for the NHS.
    The local authority have had her home and almost all of her savings. It falls on the family to pay for the extras that are part of the care home regime. In my view a home falling into inheritance tax is treated more favourably that the local authorites ability to force sell off or place charge against the home.
    My advice to somebody with a home and reaching retirement is release the capital, sell it equity release it or whatever and enjoy it because you don’t know how long you have. If you don’t the state will rob you anyway.

  10. Two points;

    1] BUPA reference to a 2 year stay refers to Local authority funded residents. Self funders live an average of 4 years in care. Reason is that L/A tend to keep people at home whereas self funders enter care a lot sooner.
    2] With effective advice their is no reason why the majority of self funders cannot fund the care they want, where they want, AND still leave an inheritance. They can appply pre and post Dilnot implementation.

  11. Why should you, the taxpayer, fund my elderly mothers care, when she has a large asset to sell (her house) to fund it herself?

    Seems to me the arguement is more about protecting your inheritance!

  12. To Harry Katz ~ To the best of my knowledge, the only product on which commission enhancements have ever been available via the network of which I’m a member was term assurance, and not from all providers either, so I never restricted myself to anything less than WoM just to get an extra ten or twenty quid commission.

    I stopped selling onshore investment bonds about 12 years ago and, even when I did sell them, I always rebated part of the commission to enhance the allocation rate. That seemed to be standard practice amongst all the other members with whom I discussed the subject.

    Our network certainly hasn’t pushed anyone towards restricted rather than independent. If members are opting for the former instead of the latter, it’s because the FSA’s criteria for retaining the independent tag are unreasonably, unnecessarily and unrealistically onerous.

    BTW, could you explain what carful husbandry is? A carful of what?

  13. Alan Lakey said “Depolarisation was the first step in a considered dismantling of the adviser community. Dressing it up as uncompetitive and offering freedom of choice for consumers was disingenuous at best and downright dishonest at worst”

    and that is exactly what will happen !

    The FSA do not like the IFA sector so the best way to render it impotent is to make it too expensive for consumers to access.
    Job done!

  14. Given their apparent inability to recall events that took place barely a decade ago, I fear many respondents to my comments above will be in need of LTC far sooner than I had imagined.

    I know exactly what polarisation involved, Alan. CP121 and the OFT’s report in 1999 are imprinted in my memory. I wrote endlessly about it. And, for the record, was strongly opposed to depolarisation – as ALL my published writing from around that period will demonstrate. I challenge anyone to dig it out and have a look.

    Actually, so were almost all consumer journalists, although as time has gone on and so many IFAs have failed to live up to the expectations that we – perhaps naively – placed on them, more and more of my colleagues have moved to a position of not giving a rat’s a*se as to whether depolarisation matters or not.

    As for whether people like or don’t like my comments about Mr Lakey, he’s a big boy and he can take care of himself. And he has his little fan club to offer him sustenance. My objection to what he writes is on factual grounds: re-writing history to have a go at David Severn when he actually brokered a deal that effectively maintained the status quo for another decade is shameful. As is the fact that none of those who chose to comment on my piece even bothered to acknowledge the point.

    On the LTC issue, I’m not arguing in favour or against the government’s decision to restrict IHT thresholds, there are good arguments for and against it. My concern is, as always, over any Government’s sleight-of-hand and the making of big promises that turn out to be worth little or nothing.

  15. I was right Nic !!

    You shy old sausage !!

  16. Nick, leaving aside the polictical cum marxist case that there should be no such thing as inheritance as this creates generational inequality. The resaon the state should pay is the same reason the state pays for health care. I see no diffrence between the nursing care provided by a residential home and the nursing care provided in Hospital, in fact in this instance they were identical. My mother initiallly treated in hospital. To get round ‘bed blocking’ she was moved to a nursing home for which she had to pay herself.
    It is not about protecting any inheritance, I don’t need the money, but the charge on the house and the raiding of joint savings affected her husband. There is an inherent unfairness that somebody that worked hard all their life and saved carefully had their assets stripped by the local authority. That includes a small pension in payment too. She has no income at all but there are still extra expenses to pay which fall to the family.

    I’d also say some local authorities are a lot more aggressive than others. Its not right.

  17. Back in January 2003 David Severn stated, “Polarisation has failed to deliver the benefits that were hoped for when it was introduced. Our proposals will most benefit the average consumer whose financial needs do not lead them to consult independent financial advisers but who nonetheless deserve better access to advice on suitable products and greater choice.”

    End of

  18. This is a pan-UK trade newspaper as Nic full well knows.

    But of course the Dilnot review and subsequent proposals are for England only. For instancs, the Scottish government currently pay for Care in that country.

    Some mention of this type of matter in future articles may help Nic avoid appearing as anglo-centric and typically English-arrogant (I say this as an Englishman myself).

  19. Harry Katz
    “As far as IHT is concerned – Nic you perhaps don’t live in London, but in London and its suburbs a £1million house is by no means unusual. Furthermore assets have usually been built up by assiduous and carful husbandry – on which taxes have already been paid.”

    This old canard gets touted over and over again. By far the greatest reason for more people breaking the IHT threshold is the increase in property prices. This gain has not been taxed. It is likely that the amount the individual has actually paid for the property out of taxed money falls into the nil rate bands available. Removing any tax simply shfits the burden elsewhere. I’d rather tax the dea at the expense of unearned gains to beneficaries that put it on the direct or indirects taxes of hard working people. £650k between siblings from their mum and dad before tax plus any exempt gifts is generous enough.

  20. Interesting how an article on LTC becomes a debate on polarisation. Regarding the latter when the menu was introduced we always gave our clients the option of paying a stated fee our allowing us to accept the commission in lieu of that feel. Most took the commission route and new exactly what we were receiving both as a percentage and a sum of money. When the FSA visited us and this issue was discussed, as files were being examined, the FSA official expressed the view that if all IFAs ran their businesses on the same model there would not have been the need for the RDR. I can only assume that as they were visiting other firms they had evidence of other practices. Certainly the current situation is confusing but some IFAs are not helping by their questionable activities. In the last two weeks because of the RDR and people leaving the “profession” I have come across an unregulated adviser and another who had no PI cover. I can also see that advisers have been effecting transactions to generate commission. Hopefully these practices will stop now that fees have to be clearly stated – or will they?

  21. As always, Alan, you are a master of the selective quote. Bear in mind that as a full-time senior official at the FSA, one would not have been expected Severn to do anything other than toe the line. But this is what David Severn actually said immediately prior to the sentence you quoted:

    “The new [de-polarised] regime …. takes nothing away from those who already have access to independent advice.”

    And this is what Aifa, the precursor of the trade body you have just joined, said at the time about the menu system, announced in October 2002:

    “Aifa believes comments from David Severn today about defined payment mean commission charging advisers will still be able to call themselves independent.

    “The trade body believes the regulator will now look for more transparency about the way advisers are charging their clients.

    “Aifa has welcomed today’s announcement by the FSA’s David Severn that the proposed defined payment system and the authorised financial adviser category look set to be scrapped.

    “Aifa says it is not surprised that DPS looks likely to be replaced with a much more workable solution more in line with the menu based approach it has been working on with IFA Promotion and has put to the FSA.

    “Aifa director of public affairs Tracey Mullins says: ‘With the menu the cost of advice will have to be given to consumers early in the process and separated from the product. It would allow IFAs to operate on commission or fee basis, not linked to their status. It is better for IFAs and would allow many more to remain independent.’

    “Following on from this move Aifa believes it makes sense for AFA to be scrapped saying it as never clear what it meant in the first place and how it would be distinguished from IFA.

    “Mullins says: ‘Just having IFAs and multi-tie would make it much clearer for consumers. But this all depends on what the FSA proposes for the tied sector. We would hope it will consider an equivalent disclosure regime for multi-ties as for IFAs.’

    Paul Smee, then director general at Aifa said: “The news that the FSA is scrapping the defined payment system and is pursuing the menu as a viable alternative is very encouraging for IFAs and consumers alike. We have said all along that the DPS would be a disaster and would severely reduce the availability of independent financial advice. The menu is much more practical and builds on current best practice.”

    Severn was quoted as saying: “We want to help consumers be more confident about the advice they are receiving, to know what they’re getting for their money and compare one adviser with another. Some constructive proposals came forward [from Aifa and IFAP] in the responses to CP121 and, of those, the Menu option offers the best route for us to achieve our objectives. Importantly, it will ensure that the form and level of adviser remuneration – and scope for negotiation – is signalled to the consumer up front.”

    You have often had a bit of fun red-baiting me in the past, but your Stalinist re-writing of history leaves me in the shade.

  22. @ NIc

    Socialist Worker polemic at its very best

  23. Socialist Worker Polemic??

    That seems to apply to Harold’s Ghost. So house prices rise. So investments rise. That is what comes under the label of Capitalism.

    The houses were dearer in the first place. I lived in Manchester for 30 years and apart from isolated areas such as Wilmslow, property prices in general don’t bear comparison to those in the South East – whether now or in the 1960,s. People who save and buy more expensive houses do so at the sacrifice of other things. What Harold’s Ghost advocates is the epitome of a feckless society. Go to the Pub 6 nights a week & smoke, – place an extra burden on the NHS, have no savings and expect those who have sacrificed and had the good fortune to see their savings (whether in property or equities) grow – to bail you out. Bad enough that today the prudent subsidise the feckless through low interest rates – you now advocate and support their persecution unto and beyond the grave.

    I thought we were supposed to encourage, foster and admire enterprise, good husbandry and prudence. Not milk it and denigrate it as if it were sinful. Fecklessness, waste and indolence are sinful – not the other way round.

    Oh and Julian – no idea – ask my typist! (Hope she got this right!)

  24. @Alan, it’s good to know that you ALWAYS meet my expectations.

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