What you need to know about paying for long-term care

Social and long-term care has, for some time, been a thorny issue in the UK with many individuals having to sacrificSocial and long-term care has, for some time, been a thorny issue in the UK with many individuals having to sacrifice all their worldly goods to pay for eye-watering care-home fees. Many families do not know what help is available from local authorities, and others fall victims to means-testing and a postcode lottery on funding. do not know what help is available from local authorities, and others fall victims to means-testing and a postcode lottery on funding. However, big changes are in the pipeline with the launch of a new, free National Care Service.

Under the planned service, people who have to live in residential care will, from 2014, get their care free after two years, regardless of their income. The government has also promised there will be more help to pay for residential costs in the initial period and for carers and families who look after each other.

Consultation on funding

In recent months there has been a huge amount of political bickering over how these changes will be paid for, with the three main parties having so far failed to reach a consensus. In a White Paper published at the end of March, the government announced plans for a commission to establish a fair and sustainable way that people can make a contribution to the National Care Service - involving a compulsory levy.

Labour has considered three possible options: a partnership option would entitle people to a set proportion of care and support costs paid by the state, insurance would offer people the chance to cover additional costs through insurance, and the comprehensive funding option would provide free health care to people when they need it.

A further option put forward last year suggested a compulsory charge being taken from a person's estate after they have died, but this was opposed by the Tories who dubbed it a "death tax," and claimed it would discourage saving and could leave those with the most modest savings facing extortionate inheritance tax bills; they are backing a voluntary insurance approach.

There are also concerns over the controversial issue of siphoning at least some funding from future entitlement to two benefits - attendance allowance and the care component of disability living allowance. The final decision now rests with the commission which will be established at the start of the next parliament.

Response to proposals

Welfare groups have broadly welcomed the White Paper, but called for adequate funding.

"Almost everyone can agree with the principle of a new system that guarantees more flexible support, earlier help and clear national entitlements rather than a postcode lottery of unmet needs," says Michelle Mitchell from Age Concern and Help the Aged. "But if it isn't adequately funded, the vision cannot be delivered and will ultimately fail the most vulnerable people in our communities."

Dot Gibson from the National Pensioners Convention (NPC) adds that at present, large numbers of older people are faced with a lack of dignity, poor services and huge bills. "The establishment of a National Care Service that is universally available to all in need, free at the point of delivery, and paid for by all, is a tremendous step towards ending the era of means-testing and unfairness," she says. "This can be afforded if we share the cost across society as a whole and pay for it through general taxation."

Save for the future

Although it is unclear as of yet just how the proposals will be paid for, it essentially means that if you have an eligible care need, you will be provided for after a period of two years. But what this belts home is the need to be adequately prepared financially for your long-term future because if you do need care then you'll still need to foot the initial bill for the first two years of care.

One way of making sure you aren't caught out financially in your later years, is by utilising the various savings vehicles available. An individual saving account (ISA), allows you to save tax-free up to £10,200 a year in a stocks and shares ISA or up to £5,100 into a cash Isa, and the balance into a stocks and shares Isa.

At the same time, a pension remains the most effective way of building up retirement income, as you get tax relief on your contributions - a great incentive to invest. As a general rule, if you have access to a company pension, it is definitely worth investing some money into it, as your employer will probably also contribute; if not, a private pension should be considered. With people living longer than ever before, the need to make sure you are looked after in your later years, has arguably never been greater.