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Push for LTC advice is ‘misplaced’ and ‘potentially dangerous’

Strategic Society Centre director James Lloyd disagrees with the strong lobbying campaign to direct people to regulated advisers for long-term care. 

James Lloyd peach 300.jpg

Although the government’s ‘capped cost’ reforms to care funding in England aim to create a market for complementary financial products, most people now realize the reforms will have no real effect on financial services. 

In the absence of being able to talk about products, an astonishing amount of effort has instead gone into trying to ensure local authorities in future push those needing care toward independent financial advisers.

Although seemingly innocuous, this agenda is misplaced and potentially dangerous for local authorities.

First: Consider some numbers. An estimated 1 million older people in England with care needs have no contact with their local authority. If only half this group approach their council in 2016 to have their care ‘meter’ started, the numbers involved will overwhelm not just councils, but the market’s capacity to provide relevant financial advice.

Second: Exactly what products would these thousands people be advised on? Pre-funded insurance or disability-linked annuities are clearly no longer relevant. Equity release has proved notably unpopular among those needing care, has costly charges, and is likely to find itself crowded out by the Government’s plans for all councils to offer ‘deferred payment schemes’.

The only product of note left is immediate needs annuities for residential care, of which around 8,000 are currently in force.

Now consider further numbers: Previous academic research suggests of the 125,000 ‘self-funders’ in residential care in England, only around 45,000 have an actuarial interest in purchasing an immediate needs annuity. Assuming all these individuals were nudged toward an IFA and a typical conversion rate of one-in-three, and this suggests there are a further 7,000 to 8,000 further immediate needs annuities to be sold in England.

Immediate needs annuities are an excellent way for self-funders in residential care to protect themselves from catastrophic costs. However, there are vastly more efficient ways of ensuring optimal take-up than obliging councils to direct hundreds of thousands of people with care needs to obtain independent financial advice.

Since in future local authorities will be means testing all self-funders in residential care, it would seem more sensible for councils to apply a basic assessment of suitability, and for only those likely to have an actuarial interest in an immediate needs annuity – around 300 people per council on average – to be directed to a regulated financial adviser. Indeed, given such self-funders will be a long way off receiving council support, this author would be happy to see them obliged to pay for this group to have regulated financial advice.

But this is not the end of the story. Greater usage of financial advice by those with care needs could potentially be dangerous for councils.

This arises from the increase in the ‘Upper Capital Limit’ in the means test for residential care to £118,000 from 2016. Individuals with total assets below this level will be guaranteed a full assessment and in many instances will begin receiving a financial contribution from their council toward their residential care fees.

The issue is this: Around half of older people in England with care needs have wealth at this level or below and for this group, the best financial advice would probably be to transfer wealth to family members to maximize how much they subsequently receive from the council if they move into residential care.

Advisers have long provided tacit help on asset transfer to ensure qualification for means tested support, even if few shout about this. However, the new ‘Upper Capital Limit’ will see hundreds of thousands more people with an immediate incentive to move wealth to younger family members.

Although rules against ‘deliberate deprivation’ of assets are already in place, their application and the chasing down of transgressors is a very grey area. Greater incentives to divest assets and more individuals with care needs using financial advice could risk a surge in this behavior, overwhelming the ability of already over-stretched councils to police it. Local authorities would also be left facing a much bigger bill for those qualifying for means tested financial support. For councils, that is a frankly dangerous prospect.

James Lloyd is director of the Strategic Society Centre



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There are 19 comments at the moment, we would love to hear your opinion too.

  1. Financial advice is not about a product sale of a long term care annuity – there is a lot more to it than that. They may need advice about ranting out their property to pay for the fees or some other plan. I definitely think they should be encouraged to seek independent advice. They however should not be directed to product salespeople. It is debatable if care annuities are any good anyway if you look at the average life span of someone in care, however, each individual has their own needs and will require an individual recommendation.

  2. Care Fees Planning from a qualified advisor is a service not a product sale.
    It is imperative that people, and their families, who are going into care are provided with ALL the options, and the costs available to them including state benefits, local authority assistance and estate planning. This enables them to make a fair and refined decision on how to fund their care – whether that is with an Immediate Care Plan, using own capital etc etc
    All reducing their estate to below the threshold will do, will be to ensure the only care the can receive is in their Local Authority Care Home (!) or with financial help from a 3rd party (?)

  3. Hi there
    Thanks for your comments.
    I think some further detail is required on the new means test rules. From April 2016, the Upper Capital Limit for residential care will be £118,000 and the Lower Capital Limit will be £17,000.
    It will vary hugely by location and other factors, but in theory, self-funders going in to residential care with wealth between these thresholds will be entitled to some amount of financial support from their local authority for care costs. For example, someone worth £85,000 might be entitled to £50 per week.
    Unlike now, and to correct IFA Anon’s comment, specific rules are being allowed to enable individuals to ‘self top-up’. So, if you are entitled to £50 per week from your authority, you will be able to spend this in the home of your choice along with the rest of your income and wealth. You certainly wouldn’t be limited to a ‘local authority home’ or relying on ‘third-party top-ups’.
    The critical thing is that because of the way the means test works, once you’ve got yourself into the realm of means tested support for residential care costs, every £1000 you transfer to your children will be worth an extra £208 per year in care costs from the local authority. For many, this will seem like a good deal.
    Now imagine Mrs Smith, aged 72, with low-level Moderate needs, a £85,000 home and £25,000 in savings. In April 2016, she and her daughter respond to the publicity around the ‘cap’ and they go to see her local authority to get her ‘meter’ started. Her local authority tells Mrs Smith that her needs are too low to be entitled to support, but direct her to see a financial adviser about preparing for future care costs.
    In this situation, will it be wrong for the adviser to point out that just by utilising her £3,000 annual gift allowance and giving this amount to her daughter (who is in fact her main caregiver) every year for five years, she will be entitled to an extra £3,120 from her local authority per year if she does goes into residential care? Of course, if Mrs Smith is willing to go above her annual gift allowance, she could get an even better deal…
    Now ponder the fact that considered as a group, there are right now around half a million Mrs Smith’s in England – that’s my conservative estimate.
    Different advisors will probably take different views about the appropriateness of such advice, and the ethics of it. Some naturally feel that their responsibility is to their client and no one else, and frankly, if their client has paid income tax for 50 years and bought a modest council home, there are worse things in the world than helping them pass on a bit of this to their children.
    How all of this plays out remains to be seen. There is a clearly potential growth here in the market here for advice on deliberate deprivation, and it will be odd if services don’t respond accordingly. Some advisors may see an opportunity to simply extend inheritance tax planning advice to those in the bottom half of the wealth distribution, targeting those in their 60s and 70s long before they need care. If such a market – which already exists – grows considerably, then over-burdened, under-resourced local authorities – many of whom have no idea how they will provide basic care services going forward – will be powerless to stop it, even as it forces up their costs. Hence, it could be considered dangerous.

  4. Sorry James but I question whether your understanding on some of this.

    Firstly the £3,000 gift allowance is for IHT – it has nothing to do with long term care. You’d struggle to argue anything to do with IHT for someone with just over £100K.

    If ‘Mrs Smith’ makes regular gifts the local authority will regard this as deprivation of capital and will treat her as though she still owns the money. Potentially leaving her in a very difficult situation. Try arguing with a local authority that she’s allowed to gift £3K a year – I don’t think you’ll find that in CRAG.

    I would be interested in where you found the details of the self top up whilst on local authority funding. This has always been banned before because it reduces the tariff income payable to the local authority. I would like to know where you have seen this new rule as it has passed me by. Will there be a ‘middle funding limit’ at the equivalent of £23,250 where this self top up has to stop, or will they be allowed to top up right until the bitter end? Doesn’t quite make sense.

    My understanding was that the higher funding limit of £118,000 was only applicable if the resident kept a property and that it would be around £27K if they didn’t. My local authority have their own version of how this will work!!

    I think what all of this clearly demonstrates is that the new system is hideously complex and if it goes ahead in its current form it will be a disaster for those that need long term care.

    It will however be good news for any of us that can actually get our heads around it; providing we don’t start advising on deliberate deprivation of assets. That will be a quick way out of business.

  5. Hi Soren,

    Thanks for your comments. This certainly all is incredibly complex, and I think its really useful to zoom in on some of the details like this to try and bottom out what it will all mean.

    So to clarify, from 2016, the means test thresholds for individuals receiving home care will be around £17,000 and £27,000. Assessable wealth in the local authority means test will be wealth in between these thresholds.

    For the residential care means test, as now, the value of a home will be included when no partner is living there. However, the means test threshold for residential care is changing. The upper threshold will rise to £118,000 from 2016. This change was one of the recommendations of the Dilnot Commission – essentially to create a smoother taper of local authority financial support up the wealth distribution, instead of the current ‘cliff-edge’.

    Self top-ups will be allowed. Have a look at Clause 30 (2) of the Care Bill currently in the House of Lords:

    This allows for individuals in receipt of local authority financial support to self top-up, and to not have to rely on third-party top-ups. Now, when you consider the nature of the reforms, you can see that this change in rules on top-ups is inevitable and necessary because there will be two new groups of self-funders resulting from the reforms:

    * Self-funders between the £17,000 and £118,000 means test thresholds who will be receiving, e.g. £80 per week of means tested financial support toward their care costs from the local authority, as they gradually spend down their wealth.
    * Self-funders who reach the £72,000 ‘cap’ who will become entitled to their local authority ‘usual cost’ rate, minus the £230 standardised living cost contribution.

    For more info on this, have a look at:

    The point is that at present and in future, both of these self-funder groups will typically pay more than the local authority usual cost rate. So, if self top-ups were not allowed, individuals at the ‘cap’ would have to move to a cheaper home if they wanted to receive local authority financial support, as would individuals below the Upper Capital Limit with some amount of means tested financial contribution from the local authority.

    What will happen to self-funders in residential care who spend all the way down to £17,000 will probably remain, as now, a very grey area.

    Now to go back to financial advice and deliberate deprivation:

    Think of Mrs Smith, aged 72, living alone, she has low level care needs, a £85,000 home and £25,000 in savings. She receives some informal care from her daughter. She does not qualify for any local authority support as her care needs are so low. She gives £3,000 to her daughter as a gift, and a thank you for the support she provides, as well as a contribution to her daughter’s petrol costs, etc.

    Aged 77, she has a stroke, her care needs increase, she moves into a care home, and is entitled to means tested support from her local authority, because of the £118,000 Upper Capital Limit (which will actually be uprated annually with inflation).

    Would the local authority go back five years, and try to treat that £3,000 gift as deliberate deprivation under CRAG rules?

    I don’t think so. 1) The costs of doing so would be too much for the sum involved. 2) It would be difficult to prove and highly contestable.

    However, by making that gift, five years before she qualified for local authority support, Mrs Smith has actually reduced her ‘tariff income’ in the means test by £624 per year, and so will be paid this amount by the local authority.

    It is simply inevitable that by creating a long, taper of support between the £17,000 and £118,000 means test thresholds, individuals who could be in this category in future will have an incentive to give away their wealth in order to increase their future entitlement to means tested financial support from the local authority.

    The key thing is: there are literally hundreds of thousands of Mrs Smiths in England currently. If these individuals see a financial advisor, or perhaps just read up online, they will quickly see the potential to move their assets to increase the financial support they are entitled to in future. For this group, a little information will be very dangerous from a local authority perspective. Hence, ramping up financial advice for individuals with care needs comes with great risks.

    And if we look more broadly at the older population without any care needs, there are a millions of households with wealth below or just above the £118,000 threshold. Long, long before they need care, good financial planning by these households may involve moving money, even if just means making regular use of the £3,000 allowance.

    I’d be really interested to hear further thoughts on this.

  6. if the client comes to you for care planning at the time it is needed, it’s too late and NOT planning, it is reactive advice.

    We plan with clients from age 55, I have the LTC qualification and in the last 15 years I have arranged 1 pre insured long term product that I can remember and no immediate care plans

  7. Hi Philip,

    Thanks for your comment.

    It would be really useful to clarify what you mean when you say “at the time it is needed”, as there are various potential categories relevant here. Do you mean individuals:

    * In residential care;
    * About to move into residential care;
    * Receiving local authority funded home care;
    * Paying for home care themselves;
    * Receiving informal care at home from a family member/partners;
    * Who have a disability of some form, but basically struggle on their own without any support.

    The expectation is that in future, all these individuals will be engaging with much greater levels of information and advice.

  8. For me advice to which you refer is not planning, it is an action to take pretty much immediately as the need is already there. That is all about knowing what the rules are and acting within them for the benefit of our clients. We have NO obligation to society other than to stay within the law who,e by LAW we have an obligation to our clients.

    Planning is for the future and a plan can be discussed and changes implemented immediately or delayed and the plan started later as circumstances change over time. Most qualified IFAs I suspect have worked with their clients for decades OR are being engage shortly before they hit retirement, so care planning is something we start discussing at regular reviews.

    Someone coming to us when they are going in to care leaves few planning choice, just implementation choices.

    An adviser recccomending voluntary deprivation is going to get themselves’ struck off which is why lla njnfpg from age 55 and impolementating for reasons which have a side effect of reducing available assets or committing to pre funding on an insured basis is more appropriate, the problem is so many providers pulled oiut of that market due to uncertainty and poor Government planning.

  9. Thanks Philip.

    So what we can say is that anyone fit and healthy who could anticipate having wealth below or not far above the £118,000 Upper Capital Limit would be well advised to think about transferring wealth
    given the current CRAG rule, specifically, at paragraph 6.070

    “The timing of the disposal should be taken into account when considering the purpose of the disposal. It would be unreasonable to decide that a resident had disposed of an asset in order to reduce his charge for accommodation when the disposal took place at a time when he was fit and healthy and could not have foreseen the need for a move to residential accommodation.”

    As a result of the care funding reforms, and the new Upper Capital Limit, the number of people in this category will grow by several million.

    For people with some form of care need, even if its just met by a bit of help from a son or daughter, and around £118,000 or below, who in theory will be encouraged to seek financial advice, this advice might point out that even small transfers of £3,000 will potentially result in financial gain further down the line when it comes to means tested support, and it will be difficult to prove that in the context of such small sums, deliberate deprivation was the aim. The cost of recovery to local authorities could also exceed the value of the amounts that people will in future be incentivised to transfer.

    In effect, the reforms will 1. create very grey areas around identifying deliberate deprivation, 2. increase the number of people with a direct incentive to transfer wealth, and reduce the amount transferred that is required to produce a gain. Ensuring far more people in this group receive financial advice – who normally might not be a typical IFA client group – is what could be the trigger for much greater amounts of wealth transfer.

  10. Hi James,

    Thanks for taking the time to reply so fully to my comments. No time to respond properly now but I will come back shortly and do so.

  11. Hi – This is a Test comment – please ignore

  12. This is test comment two – please ignore

  13. This is test comment three – please ignore

  14. This is test comment 4 – please ignore

  15. This is test comment 5 – please ignore

  16. James, could you clarify how the £12,000 cap on living costs will work?
    eg if private care home fees total £1000pw / £52,000pa,

    Nursing costs are £400pw / £20,800pa
    After the £72,000 nursing care cap applied, would the resident would still have a balance of £369pw / £19,200 to pay towards their private care home.
    (£52,000 – £19,200 – £12,000 = £19,200)

  17. Hi Anon,

    Sure. This has confused an awful lot of people.

    The key thing to understand is that the standardised living cost contribution has nothing at all to do with someone’s actual ‘board and lodging costs’ when living in a residential care facility.

    When putting together its proposal for the ‘capped cost’ model, the Dilnot Commission argued that since 1) everyone is expected to save for retirement and 2) most people get some form of state pension, it is therefore reasonable that individuals in residential care should be expected to make a contribution toward their living costs, and as such, these costs should not be capped; in particular, as people would have to pay living costs whether or not they are in residential care.

    But, the Commission argued, for the purpose of ‘metering’ people’s care costs, there should be a single, standardised living cost contribution that was predictable and consistent, rather than varying by local authority or care home.

    The Dilnot Commission recommended a range between the government’s minimum income guarantee for pensioners (lower) or the median income of the older population (upper), which is around £12,000 per year.

    Unsurprisingly, since higher living cost contributions makes the reform overall cheaper for the state, the government opted for median income.

    So, this is what the contribution is, and how it was determined – as you can see, in a way that is actually nothing to with variable board and lodging costs in a home.

    But there is a sting in the tail here: by definition, 50% of older people have income less than the median, so some people will have to spend down their wealth to pay for their living cost contribution – not a lot, but a bit.

    Also, by and large, people in care – mostly aged 85+ – have lower incomes than the overall 65+ population, for a variety of factors. So, there is also an issue here around whether or not the median income of all pensioners was the appropriate benchmark in the first place.

  18. For what it’s worth the new threshold proposals with regards to care fees are just that-proposals.

    They are due to be introduced in a number of year’s time and notably we have a General Election before all that too! Meanwhile the circa £23,250 (pending on the part of the UK you are in) capital thresholds still exists. Media reports suggest its anything between 20,000 and 70,000 homes are being sold every year to fund care fees. Clients still need advice regarding care now.

    There are perfectly legal Estate Planning solutions which happen to provide, amongst others, the protection of client’s assets from future care fees. It’s critical as advisers to ascertain at what point clients deem their assets to be at risk. Are they concerned with the impact of care whilst both are alive or in fact following the first death? Pending the response will impact the recommendations made. In some circumstances appropriate planning can be established by the Estate Planner without it bringing the issue of deliberate deprivation to the table at all. I.e. the clients may not need to give anything away!

    As such the actual need for long term care financial services products may not be required at all, although acknowledging they of course have their correct place in the market for the genuine cases.
    Where there may be circumstances where assets are considered to be transferred then of course deliberate deprivation and CRAG is a discussion point with the clients in question. This can be common for the single clients of course but not exclusively.

    Time and health of all clients are critical as confirmed by CRAG and if transferring assets is to be considered. Estate Planning whilst perfectly legal to do, can’t be guaranteed to protect from care but there are lots of cases where it legally has. However by putting no Estate Planning in place then you can guarantee the assets definitely will be at risk! I would like to guess that a large proportion of those 20,000-70,000 properties sold for care are due to the fact the clients did the latter!

    I would have to disagree that if transferring assets away from ownership is justifiably undertaken it can’t be the best advice to pass such assets to other (younger) family members. Consider the consequences should those recipients were to then divorce, or be subject to their own creditor claims or even subsequent care fees. What impact would it also have on their own estate values? Could it create an IHT issue that previously didn’t exist? Furthermore, notably with regards to property (which from experience is the predominant asset being transferred) when that property is ultimately sold in the future, the ‘owners’, due to the fact they probably didn’t live in it as their main residence, will be subject to CGT. This then can’t be the best advice!

    I also provide training to Financial Advisers and Will writers/ Estate Planners regarding Estate Planning solutions and would encourage IFA’s to either become proficient in Estate planning themselves (further string to your bow) or indeed gain a working relationship with a competent Will and Estate Planner. Clients are more than happy to be introduced to a ‘specialist’ by their IFA.

    It’s common that the Estate Planner can also generate further genuine financial services needs of the clients ranging from investments, pensions and life assurance following the review of the clients estate planning needs. This quite rightly is for the IFA to then deal.

    Finally establishing appropriate Estate planning solutions can also ensure the financial adviser doesn’t lose his clients purely because they subsequently pass away. How many advisers have lost their ‘best clients’ because they passed away and the adviser had no professional relationship with the deceased’s Executors and Trustees?

    IFA’s and Estate planners providing clients the very best advice. Its win, win all round.

  19. Kay Ingram, Divisional Director of Individual Savings & Investments at LEBC Group stated:
    “James Lloyd expresses fears that access to independent financial advice will lead to more self funders of long term care, seeking to deprive themselves of assets in order to qualify for local authority support. In making this assertion he demonstrates a lack of understanding of the existing legislation, the proposals in the Bill and of how regulated independent financial advisers actually advise clients facing care costs. Deliberate asset deprivation with a view to avoiding paying care costs is already a fruitless activity and local authorities can and do seize back or disregard the divestment of assets if it is made with this in mind.

    Financial advisers who recommended this as a means of reducing care costs would be on very sticky ground and might have to compensate clients who relied on such advice when it failed in its objective. In practice financial advisers are more likely to advise families against such a course of action, knowing that there are more reliable ways of funding care fees and that any attempt at asset deprivation is likely to end in tears for all concerned.

    By helping families find legitimate ways to fund care costs, such as claiming all benefits to which they entitled often without means tests or tax, reviewing existing investments and utilising solutions including immediate needs annuities and tax efficient investments, much of the worry of funding care can be removed. LEBC Group has developed its own software to help families plan funding scenarios which take account of benefits provision, making full use of income and investments tax efficiently and specialist products which can provide guarantees of on going income so that the most affordable care provision can be maintained as long as possible.

    There are a number of firms offering specialist advice in this area, many are members of SOLLA the Society of Later Life Advisers who practice to a very high standard and would not dream of using the tactics of which Mr Lloyd is rightly fearful.”

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