How will I save to pay for care?

Andrew Dilnot is encouraging insurance companies and other firms to come forward with new ways of saving, so that people can prepare to cover the cost of buying care in old age.

He's hoping that by capping the bill for care at £35,000, savers will be more confident that they can build up an effective way of meeting the bill.

In today's report, Dilnot suggests that pensions, Individual Savings Accounts (ISAs) and houses will be the favoured ways of saving, because they all benefit from tax breaks.

And he points to some specific products which could be beefed up by providers.

They include equity release, where a homeowner takes out a new mortgage on his or her property in order to fund some additional income, and critical illness policies from insurers.

He's also interested in making disability-linked annuities available. This would be a form of pension income, designed to increase sharply when the policyholder's needs became acute.

A big question hangs over the proposals, though: will people opt to save more, given that Andrew Dilnot is proposing to make care provision more generous than before?

He admits that few people are interested: they don't understand the care system and don't want to think about the day they'll need the care.

Paying for care - how it might work

Here's Andrew Dilnot's example of how his new system would work:


"Alice lived alone in her own home worth £175,000. She had dementia and needed to go into a residential care home when she was 83 for the last five years of her life.

• Under the current system, she would have to pay for all her care and living costs in full until she died. To cover this she would have to sell her home and would end up spending over £90,000.
• Under our reformed system, Alice would contribute in full to her care and general living costs for two years. At this point she would have reached the £35,000 cap and from then on the state would pay her care costs of £18,500 per year and Alice would just pay for her general living costs out of her pension income. She would keep 80 per cent of her wealth (£140,000)."

What this appears to mean:

*free or partly free care in England for those with savings and property worth less than £100,000 (up from £23,250)

*A cap on what you pay (once you're above that threshold) of £35,000 for care (washing,dressing, moving etc), while you pick up the hotel costs (food and accommodation)

*once you reach the £35,000 cap the care comes free, but you continue pay what you can for the hotel costs out of your income. The contribution would be up to £10,000 a year, or £190 a week, which means that people relying just on the state pension would have to dip into savings.