Labour’s shock that might wipe out your financial savings and take your house

Families were just months away from finally being given some certainty on how much they may have to pay towards the cost of care.

New reforms had promised that no one would ever have to fork out more than £86,000 towards their care over the course of their lifetime. 

This would have meant that, from next year, people with dementia would no longer be forced to sell their home to pay for their care.

And the reforms would have ended decades of uncertainty faced by workers wishing to do the prudent thing and save for care should they need it in later life. At last they would know how much to save.

But that was until Monday, when, in just 11 words, Chancellor Rachel Reeves made a surprise announcement that she was scrapping plans for the social care cap.

‘It will not be possible to take forward these charging reforms,’ she said.

Pensioners and vulnerable adults will now be forced to fork out tens of thousands of pounds extra — and even to sell their homes — to fund essential care as a result. 

And any inheritance they planned to leave for their children is likely to be eaten away by the enormous cost of care. Many will now find their retirement plans in turmoil, as care costs continue to spiral ever higher.

So how will you be affected by the shock announcement?

What were the Tories’ social care reforms?

Under plans outlined in 2021 by Boris Johnson’s government, which were due to be introduced in October next year, the most anyone in England would need to pay towards their own social care over the course of their lifetime would be capped at £86,000. This cap would not be based on income or age.

Only money spent on personal care would count towards the cap, including any help received in a care home or at a person’s own home. 

This means that any living costs incurred by care home residents — including accommodation, meals and heating — would not have counted towards the cap.

Eligible care costs were to include anything that the local authority would pay for if it were to cover a person’s care needs. 

This was designed so that those who chose more expensive care did not have an unfair advantage and would have to make up the difference themselves.

Once your spending on care reached the self-funding cap, the local authority would have picked up the bill for the rest of the care costs.

This meant that while the cap shielded you from some care costs, you would have to continue funding your own living and accommodation expenses.

Healthcare data provider LaingBuisson predicted that someone would need to spend £238,700 on average for care before reaching the cap.

The upper limit on the amount of savings you could have while receiving support with social care costs was also due to rise from £23,250 to £100,000.

Similarly, the lower capital limit, below which you do not have to contribute anything towards your care, was due to rise from £14,250 to £20,000.

This would have meant anyone with savings of less than £20,000 would have qualified for financial support from their local authority.

Other reforms in the works included so-called ‘fair cost’ measures. These would have given people who were self-funding their care access to the lower prices that local authorities pay for care services.

The package of measures were a response to reforms recommended by Sir Andrew Dilnot in 2011 as part of a commission set up by the Conservative-Lib Dem coalition government. Successive governments delayed reform until they were finally planned to come into force from October 2023.

In the 2022 Autumn Statement, the timeframe was pushed back to October 2025 — more than 14 years after Sir Andrew made his recommendations.

What will happen to the cap now?

Reeves blamed the previous government for failing to put aside money to introduce the reforms, and the Treasury has said the proposed cap changes are ‘impossible to deliver in full’ by the set timeframes.

This came as part of a swathe of cuts to spending to help plug a claimed £22 billion ‘black hole’ which Reeves alleges was left by the Tories.

Labour’s election manifesto did not mention social care reforms, but Health Secretary Wes Streeting last month promised the cap would come into force if Labour won the election.

Abandoning the reform will save the Government more than £1.1 billion by the end of April 2026, the audit shows.

The hefty bill will instead need to be picked up by those receiving social care and their families.

Sir Andrew, who recommended the reforms, yesterday told the BBC’s Today programme that the decision to scrap them was a ‘tragedy’ and ‘unbelievably disappointing for hundreds of thousands of families’.

What it means for you

The decision to scrap these much-needed reforms has thrown workers trying to save for retirement into turmoil, with plans for social care funding upended.

It means there will be no limit to the amount that people pay for their personal care fees over the course of their lifetime. The thresholds at which people can start to receive financial help will also remain very low.

English care homes cost £65,884 per year on average for an individual in 2023, including nursing care, according to LaingBuisson. This included hotel costs and personal care costs.

This enormous care bill will now need to be self-funded, unless you are entitled to means-tested help.

Steven Cameron, pensions director at financial services group Aegon, says: ‘Had the new funding deal been introduced, individuals would have been able to plan for the eventuality of needing to pay for care.

‘Unfortunately, those who have done the right thing and saved for their later life could see it all — and their family home — disappear to pay for care, destroying plans to leave an inheritance to loved ones.’

It’s possible many savers had already factored the reforms into their retirement planning.

Savers will need to recalculate their needs and adjust how much they set aside for care costs so they are prepared.

Stephen Lowe, of retirement specialist Just Group, says people are now likely to be deterred from planning for later life.

‘We know almost two in three of over-75s were waiting for a clear government policy on social care before they started making any plans,’ he says.

‘Not planning leaves people vulnerable to having to make snap decisions about care, often at a point of crisis, which can lead to poorer outcomes for some of the most vulnerable in our society.’

The charity Alzheimer’s Society says the ‘burden’ is now entirely on individuals to fund their care.

What will I need to save for care?

There is no limit to the amount that someone can pay for the cost of their social care.

The cost of care has spiralled in recent years, with care home fees costing as much as 20 per cent more in 2023-24 than they did just two years earlier, according to LaingBuisson. You may be able to get help from the local authority — but any support is means-tested.

This means that if you need care for long time, the fees risk eroding any money you planned to leave loved ones. Some people take steps to protect their wealth in advance, such as putting a home into trust. 

However, this must be done carefully to avoid falling foul of the rules and only with good legal advice.

People who require care should also check if they can get equipment or home adaptations which cost up to £1,000 for free. These services are not means-tested.

How to avoid selling your home

Pensioners who run out of money while paying for their social care may be forced to sell their family home to fund it.

If the local council is arranging your care home, they will run a financial assessment to decide how much you should pay towards it and they might take into account the value of your home at its current market value.

Any outstanding mortgage or loan you have on it will be deducted from the value.

If the assessment shows your capital, not including your home, is above £23,250, it is likely you have to pay all of your own care costs. If you don’t have any savings, you may be forced to sell your home to pay for this.

There are some situations where your home won’t be included in the financial assessment. For example, if you receive care at home or if you need short-term or temporary care in a care home.

Similarly, if a partner, spouse or civil partner still lives in the house, the property will not be considered. 

This also applies for estranged or divorced partners if they are also a lone parent, a relative who is 60 or over, a relative under 60 who has a disability or a child of yours aged under 18.

If you have someone living in your home who does not fall into these categories, it is still worth making a request because the council can still choose to leave the value of your home out of the financial assessment. There are also other ways to avoid selling your home to pay care home fees.

Natasha Etherton, a financial adviser at wealth manager Evelyn Partners, says those who are vulnerable to this could instead let their property to generate a rental income. 

This could be enough to cover the shortfall between their income and social care fees. But they need to beware of tax on rental income and account for the cost of managing the property, as a management company will charge a fee.

She says: ‘You may also be able to invest your cash or house proceeds to provide a return but this comes with investment risk.’

You could release money from your house via ‘equity release’. Banks and insurance companies allow you to take money that is tied up in your home without selling it. But beware, you have to pay interest on the money you take out, which can be expensive.

Alternatively, if your home is included in the financial assessment, your council must offer you a so-called ‘deferred payment agreement’ (DPA). This means the council will provide financial help with care home fees on the basis that you pay the council back from your property at a later date — either when the property is sold or from your estate when you die. This allows you to postpone having to sell your property.

A contract called an ‘immediate needs annuity’ could also be of use if the person in care wants a secure income to contribute to their fees. This provides a guaranteed monthly income for life in exchange for a lump sum, much like a pension annuity.

If the council suspects you have transferred ownership of your home to someone to avoid care home fees, it can still treat the property as if it belongs to you.

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