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Lifetime sector may see indirect boost from proposed social care changes

  • 08/09/2021
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Lifetime sector may see indirect boost from proposed social care changes
The government’s proposed £86,000 social care cap will not impact activity in the equity release market and instead could mean lifetime mortgages might be used as retirement income to fund care costs.


The policy would cap social care costs in England at £86,000, so from October 2023 individuals paying for their own care would pay up to that amount after which the government would take over.

The government says this would protect individuals and families from “unpredictable and potentially catastrophic care costs” and will be funded by increasing National Insurance tax.

The proposals also reform the means test so an individual would only pay for their care if their assets were worth more than £100,000, which is more than four times the current limit of £23,2350.

Those with assets of less than £20,000 will not have to contribute to the care from savings or home value, whilst those between £20,000 and £100,000 will have some mean-tested support.

Currently, individuals needing care in a care home or in their own home must pay it for themselves if they have assets more than £23,250, but for home-based care, their property value is not taken into account.

If it is below £23,250, but above £14,250, they will be charged a proportion of the cost of their care.


Lender perspectives

Some have posited that the changes would be a positive for the equity release market as it will allow older borrowers to use their property wealth to fund their retirement income rather than use it for care.

Stuart Wilson, corporate marketing director for Key Group which owns lifetime mortgage lender More 2 Life, said he did not expect the cap to affect the level of activity in the equity release market.

He said: “With the number of over-65s in the UK standing at over 12.5m, and the economic impact of the pandemic still being felt acutely, it is important that protective measures are introduced with haste. These social care reforms will allow more older homeowners to use their property wealth to boost their retirement income rather than needing to cover the cost of care in later life.”

He said that more older borrowers were concerned as to how they would fund care in later life, and this had increased during the pandemic.

Wilson also said average residential care home fees were £27,000 to £39,000 per year, which did not include nursing care which could cost £35,000 to £55,000, meaning that the cost of care could be more than £150,000 in five years.

He said: “With the introduction of a cap on the care costs, retirees will be able to make the most of their later life income, including from equity release, to have a more comfortable standard of living in retirement, without having to set a significant proportion aside to fund any potential care needs.”

Others added that the cap did not cover other care costs, so equity release could be a good finance option.

Stephen Lowe, group communications director at retirement specialist Just Group, said the cap did not cover expense like accommodation and food, and the government was not clear as to how much people should contribute to these costs or set a range for expenses.

Consequently, he said it was likely that equity release might need to be used to cover these costs, but the government needed to make it clear what is and is not covered so there aren’t any “nasty surprises.”

He added that research done by the firm showed around a third of over 75s were open to the idea of using their property to pay for residential care, and an increasing number of people were saying they would prefer to stay at home.

He said: “For many people their property will be their single largest asset and for those who do not want to go into residential care, but stay at home instead, they will want to look at how they can use their property to meet the costs of receiving care at home.

“For this group, equity release will be a key consideration. After yesterday’s announcement, financial advisers will have an increasingly important role to play in helping people make sense of the system and plan for the costs of later life care.”

Equity Release Council’s chief executive Jim Boyd said the association welcomed the commitment to address social care funding, saying it was “one of the major domestic issues of our time”.

He said that their research had shown that nearly half of UK adults supported the idea of state-funded social care being available to all to a certain level, with the option of topping up funds with their own finances.

Boyd added: “Enabling people to use assets like property wealth will also play an important supporting role by helping some people fund additional care or modify their homes to fulfil their desire to stay living independently in their homes where possible, while also shouldering care costs from younger generations.”

However, he said using NI contributions would disproportionately impact working age people, and that a sustainable solution would need to be “fair across all generations”.

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