This talk was given 13 June 2011
The text here may not be identical to the spoken text

VOLUNTEER VISITORS OF THE ROYAL SOCIETY OF CHEMISTRY BENEVOLENT FUND.

Delighted to be here to talk to you.

My stepfather was a member of the Royal Society of Chemistry. He and my mother were married for nearly 25 years and when he died in 2008 I was contacted by the RSC asking if she needed help including financial help. She didn’t as it turned out but I was very grateful and surprised at the offer.

I don’t just do Money Box, I also write for Saga Magazine. But I am here today representing not Saga Magazine, not Money Box not Radio 4 and God forbid certainly not the BBC. I am here as me a freelance financial journalist.

I propose to talk to you about two things.

Care home fees

State pension changes

Care home fees

The recent stories about Southern Cross care homes which is staving off bankruptcy despite being the biggest care home provider in the UK has reignited the concerns about care and who pays for it. Southern Cross has 31,000 residents in 750 homes looked after by 41,000 staff. Though last week it announced plans to shed 3000 jobs. The real problem though is the complex structure devised by its previous venture capital owners with rents fixed but having to be paid for 25 years. Now it is trying to pay 30% less rent. But what has really ignited the debate is the suggestion that previous venture capital management has taken £35mn out in personal profits and around £1bn in general profits for one time owner Blackstone.

The real problem with care homes is declining income as local authorities cut back and growing costs of private self-funding care which can’t continue to fill the gap. Heating costs and the cost of borrowing also a factor.

But that is a sideshow really in the debate about care home fees and who should pay. It was a major part of the election campaign last year – gosh that seems a long time ago! – and next month Andrew Dilnot – broadcaster, economist, and now Chair of the Commission on Funding of Care and Support which will report into how we pay for care.

Everyone agrees that we need to reform the way that care is provided for people as we all age but don’t die. We all agree that ageing without dying is a good thing. We all agree that care should be provided for people in that phase of life. And when it comes to who will pay – then again we all agree – someone should. But ‘who’ is where the consensus breaks down.

The tabloid press – and I am sorry to include The Daily Telegraph in that definition – is obsessed with people being ‘forced to sell their home’ to pay for care.

Here is a Daily Mail article from last week about Dilnot’s commission.

It contains this phrase

“Some 20,000 are forced to sell their homes every year.” but does concede that Dilnot’s plans should mean “no one is forced to sell their homes to pay for care”

We’ll come back to what Dilnot is expected to propose later. But I want first to look at this idea of being forced to sell your home. Here is a more extreme set of stories from before the last election.

The Daily Mail joined in and both had trenchant editorials and copy such as “Labour’s betrayal of the elderly was laid bare yesterday as a hero Spitfire pilot faced having to sell his home to pay for residential care”

Now the rules are complicated and I suppose I shouldn’t blame fellow journalists for getting them wrong.

I am sure a lot of people you talk to are concerned about it here is what you have to remember.

No-one, ever, can be forced to sell their home to pay for their care.

Now, if your capital resources are more than a certain amount then you do have to pay your own fees. Those limits are slightly different in England, Wales, Scotland, and Northern Ireland but are around £23,000. Above that you get no help – below different limits you get all fees paid. And in between you have to pay a contribution NB Wales.

And in some cases the value of the house or flat you leave behind can count as part of your capital. And that can rule you out of help from the local social services department.

But remember the rule. No-one, ever, can be forced to sell their home to pay for their care.

And this is why.

1. If you leave behind a spouse or partner living there then the value of the home is completely ignored.

This Express story fell at this first hurdle as 88 year old Mr Mejor did leave behind a wife Cecile. That was dismissed by the Express in para 13 as ‘a glimmer of hope’. Never let the facts get in the way of a good story!

2. If a relative aged 60 or more lives there then the value of the home is completely ignored. Mr Mejor’s daughter Sally aged 54 lives in the house as a carer for her mother. So if the 94-year-old Cecile survives another six years, the house will not count even when she dies.

3. If someone who acts as a carer lives there then the local authority has the discretion to ignore the value of the home.

So the Express story could fail there too – even if Cecile dies before Sally is 60.

But suppose that doesn’t happen – no spouse, no relative over 60, no carer, an empty house or flat?

It still doesn’t have to be sold.

For the first twelve weeks in the home the value of the home is ignored. And after that there can be a deferred payment agreement. Introduced in October 2001 this agreement allows the resident not to pay for their care at the time. Instead the bill clocks up every week but nothing is paid. Instead the local authority takes a legal charge on the home so that when the person dies or the home is sold the care bill is paid.

The care bill is added up each week without interest being charged. So it is an interest free loan. No interest is charge until 56 days – 8 weeks – after the person in the home dies.

And of course while that is happening the property can be rented out or lived in by a younger friend or relative to keep it in good order.  The income from that can be used to pay the care home fees.

In this way the amount lost on death from the value of the home can be minimal.

Now not all local authorities offer deferred payment agreements – though they should. They were reminded in England in April 2009 that if a council did not then “it is likely the courts would find this to be unlawful”. Similar rules apply in Scotland and Wales. [LAC(DH)(2009)3 para 15]

But what if Cecile dies, daughter Sally is still under 60, discretion isn’t authorised, and the council does not offer a deferred payment agreement will Mr Mejor have to sell his home?

No.

Under the National Assistance Act 1948 the local authority has to provide accommodation for elderly people who need care. And that obligation is not extinguished if the person receiving the care refuses to pay for it. The procedure in those cases is set out in s.22 of the Health and Social Services and Social Security Adjudications Act 1983 – usually known as HASSASSA. It says the local authority has to place a charge on the Land Registry against the value of the property but cannot charge interest on the debt while the person is alive. And the only real difference is that interest is charged from the day after the person’s death rather than waiting for 56 days.

So even without a deferred payment agreement the debt can build up interest free until the resident in the care home dies.

You just have to be firm. But if you are, no-one has to sell their home to pay for their care.

I find all this particularly frustrating because I wrote about it in an article in Saga Magazine in November 1994 where I set these rules out. I called it ‘Hold on to your home’. And here is what I wrote then. – “They cannot force you to sell your home.” And the rules have not changed since then

So. No-one ever can be forced to sell their home to pay for their care.

During the time the home is empty it can be rented out and provide an income to help pay the fees. So the eventual bill is less but of course the person in the care home does sort of pay for it out of the value of their home.

Back to the Mail article from earlier and its main conclusions.

“Pensioners may have to consider selling up and moving to a smaller home to help pay for their care…the elderly may also be called upon to raid pension funds to meet the cost of home helps or care home fees…”

But then it goes on to say

“The economist’s comments will enrage those who believe hard-working couples who have paid taxes all their lives should not have to make extra contributions just when they become frail.”

And here is the problem at the heart of the tabloid view of this problem. We all accept that the present situation is not great. Local authorities are not paying enough. Perhaps 20,000 people a year may be selling their home to pay for care – though as I said – they don’t have to. And remember that most people never go into a home – perhaps one in five of us does, it may be less. And of those who do about one in twenty sells their home to pay for it. One in a hundred of the population.

People like my neighbour Margaret. She was in her eighties and had two hip operations neither of which worked well. Using a zimmer frame, struggling up and down stairs and then dementia began. She sold her house to pay for her own care near friends, by the seaside and got a much higher standard of care for the eight months she lived than if she had struggled to get the council to provide her with something suitable in London. She is one of those 19,000 who sold their home to pay for their care in 2009. I am very glad she did. And I am sure she was too.

So of those who do sell their home – and I won’t bore you with the calculation to reach 20,000 which is a bit tendentious – many of them were not forced to do so they chose to do so.

And why shouldn’t they? It is not the person in the home who loses. They are in there for life. It is their heirs who in fact pay through a lower inheritance. And it is their heirs who are the readers of the Daily Mail and Daily Express who object to paying out.

But if we accept that we are not spending enough on care for the elderly – and many care homes are not great and do cost up to £700 a week or more – then there are not many sources for the money. We could all pay more tax. Perhaps 2p or 3p on our income tax for example. There could be a special death tax as Labour appeared to suggest before the election last year.

That was used against it by the Conservatives. And it is true that its White Paper on care did just about make that suggestion as part of its options 3 and 4.

Because for reasons I have never understood Inheritance Tax is just about the most hated tax – second only to council tax.

I write guides to Inheritance Tax – how it works, how to reduce it and so on. But I always start by saying something like this – It is one of the most hated taxes. And that puzzles me. Because when it is due when you are dead. Someone else pays it. (The ideal tax for me.) And very few pay it anyway.

One reason for that is because in October 2007 Alistair Darling made the Inheritance Tax allowance portable from one married or civil partner to another. Couples with assets of less than £650,000 need not worry about Inheritance Tax today.

Here are the figures. Each year about 580,000 people die in the UK. And in 2010/11 16,000 estates paid Inheritance Tax. That is less than 3 estates in 100. In fact it is one in every 36. In other words out of 36 funerals you see only one of those families in black will have to worry about Inheritance Tax. It is a minority concern.

Now if there was a new death tax to pay for care then (a) and (b) would certainly still be true – when you are dead and paid by someone else. Though (c) would not be. It would apply in addition to any IHT to all estates. And as about 70% of the retired population own their home and just about all of them have £20,000 much equity in it. Which is why Labour’s old pre-election idea of a flat-rate death tax would work – it would raise about £8bn a year which is roughly what we spend on care now.

The election killed off the £20,000 death tax. Now it seems likely that Dilnot will propose something different from that – we don’t know what. It will be a combination of tax and spending from the value of our homes – perhaps with a cap of £50,000 of the value of the home that can be taken – though that might be £50,000 each partner to be taken when the home is eventually sold. And those who do pay it shouldn’t care. This contribution is due not on money that is earned or saved. It is due on a windfall gain on the home they live in.

If you are 80 now and paid off your mortgage at 65 and bought that house at 50. Suppose that home is now well into the IHT band. Suppose it is worth £500,000 – now for most people who are or have been a couple no tax will be due on that. But if you are single or haven’t arranged your affairs sensibly then tax may be due. So let’s ignore that fact.

If it is worth £500,000 now and you bought it 30 years ago it was then £67,750. Now you may have struggled to pay that mortgage off over the next 15 years – average pay then was around £4,100 a year. So it was about 16.5 times average earnings. But you managed it. Today that house is worth about 20 times average earnings - £500,000. So you have a windfall gain of £432,250. Money you haven’t earned in any sense of the word. And even if you take account of the cost of borrowing most of that money the windfall is still nearly £400,000.

That has been created by inflation, by wage rises, by the economy of the country, by the state you live in. So why shouldn’t the state take some of it back? £50,000 – even double that – is a fraction of that amount. In many countries that capital gain on your home would be taxed while you were alive.

And it is strange that the tabloid press opposes using this windfall gain to pay for care. Because there are only two places to get the money – the value of property, or imposing a new tax or adding to an existing one. Maybe 3p or 4p on the basic rate of income tax would be needed. In fact Dilnot will propose a combination of both – though where the tax will be levied is still a closely guarded secret.

The only alternative is to say we don’t care, let people carry on paying for expensive and mediocre care homes.

One final thought on paying for care homes. Many people are in a home with capital in excess of the limits and are paying for themselves. Self-funders.

Many people say why doesn’t the NHS pay.

Many people in a home have medical needs and their fees should in fact be met by the NHS. Especially true – but not uniquely true – if discahrged from hospital. The NHS will pay without a means-test and the whole fee so it is well worth trying.

Advice from Carers UK is that you have to show the person has a high level of primary health need – related to health not social care. Can be mental or physical needs. So Alzheimer’s included. And as condition gets worse can ask for re-assessment.

Step 1 is to use the checklist tool – a short questionnaire to give an idea if you will be successful, downloaded from nhs.uk

Step 2 if you want to try it out is the decision support tool. That is what the Primary Care Trust – who you apply to – will use. If it is refused then you can appeal to an independent review panel.

Can be daunting.

Should you pay someone to do it for you?

No.

Money Box contacted by a listener, Stella from West Yorkshire. She had seen adverts in national newspapers by firms offering to get refunds for people who are paying their care home fees themselves.

The adverts say those people may have been wrongly assessed by the NHS and might be able to get nursing care free. Stella was tempted as her mother was 96 and had been funding her own care in a home for the past 3 years.

And there many companies offering to help with getting care home fees back – advertising on the internet.

They charge a percentage of any fees recovered and some charge you upfront fees as well.

We looked into Healthcare Fee Solutions based in West Yorkshire. There are no prices on the website, but it says the firm makes no charge for assessing if you’re eligible and takes on all the costs incurred to take your case forward.

But that is misleading. All that is free is the initial phonecall. If the firm looks into your case, you have to pay £695 for an assessor, who isn’t medically trained, to meet the family and take notes on the person’s condition.

Nurses then hired from an agency look at the notes and decide if you have a good chance of a review if you apply to the NHS Primary Care Trust. If they don’t think you do, you do get a refund of £500.

But if you do decide to go ahead with the review, there’s another £500 to pay Healthcare Fee Solutions before the NHS Primary Care Trust makes its decision. And if it does reassess the person and pays the fees, these can be backdated for months or even years and Healthcare Fee Solutions also takes 25% of that refund.

Healthcare Fee Solutions. gave us four examples where the average settlement was around £35,000. That would mean an average fee to Healthcare Fee Solutions of just over £10,000 each.

We also discovered that the firm’s three directors [Richard Bennewitz, Elaine Marshall and Steven Hume] were also directors of another claims firm business called Individual Credit Solutions Limited. A year ago the Advertising Standards Authority banned one of the company’s adverts on the grounds that it was “misleading” because it said the firm didn’t charge a fee when they did. Iit operated out of the same address as Healthcare Fee Solutions. until it went into liquidation last October owing £100,000 to Revenue and Customs.

So my advice is do it yourself. No indication paying a firm will have any better result and could cost you many thousands of pounds.

Self-funders in care

If all else fails and the person does end up paying for their own care, then make sure they get the benefits they are entitled to.

1. Claim attendance allowance £49.30 day or night care or £73.60 a week day and night care, both taxfree.

2. Claim winter fuel payment £100 born 5 January 1951 or earlier or £150 born 25 September 1931 or earlier. Also tax-free. These half rates paid in care homes and only to self-funders.

PENSIONS

State pension

Women’s state pension age. Rising.

Original plan set out in 1995 and for women born 6 April 1950 to 5 April 1953 no change beyond that passed more than 15 years ago. Currently women born in last quarter of 1950 retired either on 6 May or will do so on 6 July (week of) aged about 60y 7m.

But for women born from 6 April 1953 big changes. Table shows delay beyond that of 2 months right up to 2 years and then back down to 1 year depending on your date of birth.

Five million men and women face a change. About half each

500k women face delay of more than one year

300k more than 18 months

126k more than 22 months

33,000 more than 2 years in this dark grey band where women born 6 March to 5 April 1954 will have to wait two more years. Expected to retire at 64 in March 2018 will now have to wait until they are 66 in March 2020.

See TABLE

Is the government wobbling over plans to accelerate the rise in women’s State Pension age?

Here are the straws in the wind which indicate a change in the weather. On 11 May Pensions Minister Steve Webb wound up a debate on the delays in the House of Commons with these words “I will certainly reflect on the contributions of my hon. Friends and other Members… Some of the points that have been put on record today have been made forcefully and effectively.”(Hansard col 443WH)

On 18 May he used a similar phrase in answer to questions at a conference at the British Library for pension professionals when he is reported by a lawyer present to have said “We will reflect on the State Pension Age for those women affected by more than two years.”

Ministers don’t normally reflect that hard on settled policy.

That same day, 18 May, Jenny Willott MP, who speaks on pension issues for all 39 backbench Liberal Democrat MPs, issued a press release saying there was a “real and justified concern that the changes to state pension age are deeply unfair, particularly to the 33,000 women who are being asked to work two years longer at very short notice.” I understand that her backbenchers may well vote against the plans when they are properly debated in a few weeks time; 14 have already signed a motion condemning the changes. She took these concerns to Steve Webb at a meeting in the evening of 18 May. Afterwards she would not tell me what was said but confirmed she was “optimistic”.

Any change to the announced plans would be expensive. Scrapping the accelerated programme completely and moving pension age up to 66 by 2022 rather than 2020 would cost an estimated £10bn. Even lesser changes are measured in the hundreds of millions. Although Steve Webb is, of course, in charge of pension policy the Treasury remains in charge of spending. If Steve Webb wants to spend money on changing the announced timetable, past experience suggests he will have to pay for it by making cuts elsewhere.

When I interviewed him he refused to indicate any change and once just refused to answer – stayed silent.

State pension for 21^st century

Will not start before April 2016 – after next General Election on 5 May 2015.

Will not apply to anyone who reaches state pension age before it begins

So it excludes men born before 6 April 1951, women born before 6 April 1953

Not flat rate – needs 30 years of National Insurance contributions. Reduced April 2010 from 44/39.

Less than 7 years contributions will earn nothing. SAVING

Those who qualify by birth date will still get old rules pension if that is more.

SERPS/S2P can still be paid partly through company pension.

Other savings –

Married woman’s 60% pension on husband’s contributions scrapped. Only just extended to married men and civil partners. Inheriting state pension by widows/employers may go. SAVING

Deferring and earning more pension may be made less generous SAVING

Guide figure of £140 a week. NB about 1.5mn already get a pension more than this. Long term that will be a saving.

Whole of it will rise with Earnings or CPI or 2.5% - basic now by that but SERPS/S2P by CPI only.

Will probably be between £160 and £175 a week when it starts.

Pension credit savings credit will be scrapped for new claims

At the moment 1.6 million people with an income between £103 and £188 a week who are single (between £166 and £207 for a couple) get some savings credit. For those aged 65 or more and can add £20 a week to income.

Pension credit guarantee credit may also be changed and set lower

National Insurance contributions will rise as contracting out ends. Already pesonal penson contracting out ends April 2012 rise by 1.6% and 0.2% for those in company schemes and then a further 1.4% to 12% from April 2016 or when this new scheme starts.

Consultation until 24 June. White Paper maybe early next year. Bill after that.

e-mail Paul Lewis