Labour scrapped planned changes to social care funding. What could this mean for you?

When the Labour Party took power after winning the general election on 4 July 2024, chancellor Rachel Reeves warned that the government had inherited a difficult economic situation from the Conservatives.

She claimed there was a £22 billion “black hole” in the public finances and suggested that Labour would have to make “difficult decisions” to balance the books.

The chancellor announced several changes to help the government close the gap between tax revenue and spending, with more likely to be revealed in the upcoming Budget on 30 October 2024.

One of the measures was to cancel planned changes to care funding. As you plan for retirement, it’s important that you understand how this could affect you.

Read on to learn more.

The government will only help with care costs if your total assets are worth less than £23,250

As you get older and may be more likely to face health issues, you might require care. You may have carers visit you in your home or, if your needs are greater, you might have to move into a residential or nursing facility.

According to Age UK, the average cost of a care home in the UK is around £800 a week. This rises to £1,078 if you require nursing care.

As such, you could spend a significant portion of your wealth if you need care in later life.

The local authority may offer support with care costs but this is means-tested and you might not qualify.

In the 2024/25 tax year, if your total assets – including your home – are worth more than £23,250, you will have to cover the entire cost of your care. This is known as the “upper capital limit” (UCL).

Once your assets fall below the UCL, you will receive some support with your care costs.

If you have assets between £14,250 and £23,250, the council will pay some of your costs and you will contribute from your income. You will also pay an additional “tariff income” of £1 a week for every £250 that exceeds the £14,250 threshold.

Yet, if your total assets are less than £14,250 – the “lower capital limit” (LCL) – the council covers your care costs and you may pay a nominal contribution from your income, but you don’t pay a tariff income.

As such, if you require care for an extended period of time, you may be forced to spend your savings and potentially even sell your home to cover the costs.

This may mean that you don’t have much wealth left to leave to your loved ones.

Rachel Reeves cancelled a proposed cap on care costs and changes to the capital limits

Prior to the general election, the Conservative government announced plans to change the way that funding for care costs worked.

They proposed:

  • Increasing the UCL to £100,000 and the LCL to £20,000
  • Capping the total amount a person could spend on care at £86,000.

The reforms were welcomed by many as it would mean you were more likely to receive support with care costs and you wouldn’t have to use as much of your own wealth. Ultimately, this would’ve meant it was easier to retain wealth to fund your lifestyle and pass to your loved ones.

Unfortunately, Rachel Reeves announced that Labour would scrap these reforms and the current system for care funding will remain in place. As reported by Community Care, the chancellor estimates this will save £1.1 billion by the end of 2025.

As such, you may need to plan for care costs in the future. If you factor in the cost of care when creating your financial plan, you may be able to retain more of your wealth.

A financial planner could help you plan for care costs in later life

Planning ahead could mean that you’re better able to afford care, and we can help you achieve this in several ways.

First, we can estimate how much long-term care might cost you. We can then use cashflow planning to model how paying for care expenses would affect your savings. This should give you an idea of how much additional wealth you might need to cover care costs.

Next, we can explore different ways to build more wealth and ensure that you’re contributing enough to your savings and investments. We might also discuss alternative options such as an immediate needs annuity.

By incorporating care costs into your financial plan in this way, this expense may be less likely to disrupt your ability to work towards goals, such as passing wealth to your loved ones.

Get in touch

If you’re concerned about how you will pay for care costs in later life, we can help.

Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or cashflow planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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