The proposed increase of the means tested threshold
There has been news around the new care funding proposed reforms, but they may not be as great as people originally thought. There is a proposal that there will be an increase to the proposed higher threshold for means tested funding, which currently stands at £23,250 (with a lower threshold of £14,250).
The new upper threshold is proposed to be £118,000 (to include the property) and the lower one has not yet been agreed, but discussions have been IRO£17,000. There has been a alternate threshold proposed of £27,000 where the property is disregarded. Sounds great but:
What people have not realised is that between the two thresholds there is what is called “notional income”. This is income that someone is deemed to receive (like interest) if they have savings. The notional income is set at £1per week for every £250 of capital (or part thereof) between the thresholds, ie £52 per year interest for £250 (an interest rate of 20.8%) – where does anyone get that? It is known that this is unachievable and it is meant to be a mechanism to slowly reduce capital to the lower rate.
So what will this mean in relation to these new capital limits? Someone will therefore have deemed income of:
£101,000/£250 = £404 of deemed income
So with pension and pension credit, as the lowest amount of income of £145.40 that people are likely to have, in this example they will be deemed to have a total income of £549.40. The personal allowance is £23.90, so they will have to pay £525.50 per week towards the cost of their care, even though they only have actual income of £145.40 (excluding any interest). Hence there will be a significant erosion of this capital. It should also be noted that this is the majority of the care fees, as the average cost of care is IRO£600 per week.
The alternate threshold of £27,000 is good news, but the notional capital rules still apply, but is only an increase of £3,750 and this is probably because the thresholds have been frozen for a few years now, so all it does is bring it back to a roughly inflationary increase.
Once again, it sound fabulous that there will be support for anyone with assets over £118,000, but on analysis, it is nowhere near the good news people hoped it would be.