(10 years, 9 months ago)
Lords ChamberRead Hansard Text Read Debate Ministerial Extracts
Lord Lipsey
To ask Her Majesty’s Government what plans they have for the role of the financial services industry in funding care provision in the light of the Dilnot commission reforms.
Lord Lipsey (Lab)
My Lords, I declare my interests as unremunerated president of the Society of Later Life Advisers and a member of the advisory committee of the Equity Release Council.
The request for a debate on this was sparked by the publication on 21 January, jointly by the Department of Health and the Association of British Insurers, of a document called Social Care Funding: Statement of Intent. To be more accurate, it was sparked by the reporting of that document the next day in the Financial Times, which said that the statement meant that,
“government hopes of early products covering the cost of long-term care for the elderly”,
had been dashed. That was based on one conclusion of the report: it was unlikely that prefunded products to pay for long-term care would emerge, at least in the immediate future—that is, products that people had paid for during their working life. I am myself a journalist, but I am afraid that that really was news only to the FT. There have been no such products for a very long time, and they are even less likely in the light of the Dilnot cap on care costs. The fundamental reasons are very simple: they are supply and demand. From the point of view of companies providing them, they are very difficult policies to produce, because they require you to assess many years in advance how long people will live for, how long they will claim off the policies for and how much the cost will be. That is on top of all the usual problems of moral hazard with any insurance product. To put it technically, they are virtually impossible to price.
Even if those products were on offer, who on earth will buy them? We know that people during their working lives do not much care to think about their last years of life. We know that roughly only one in three people goes into residential care and is therefore most likely to benefit from prefunded products, and we know from talking to independent financial advisers that if you try to raise this sort of product with people during their working lives, they are not interested. They are interested in their pensions, yes, but not in care products. So they have never been a possibility and nothing in the Government’s plans has ever assumed that they were a possibility or were going to happen. If I were an insurance salesman, which thank God I am not, I reckon that I would have a better chance at selling heating to the denizens of hell than I would of selling these products on earth, if they existed. They are unsuitable and unsaleable—what is to like?
The FT missed the real story in the account, which is that there are two classes of product that are saleable and suitable and would supplement the recommendations of Dilnot as interpreted by the Government. One is point-of-use products whereby, if I go into a home tomorrow, I can insure myself so that my care costs are covered, however long I live. The second product is the enhanced annuity—that is, I start off with one pension and then, as I develop greater care needs, that pension is enhanced. I want to say a word or two on each of those products, which are essential in complementing the Dilnot proposals.
Point-of-use policies already exist. It is a small and specialised market, with about 7,000 policies extant and about 1,000 sold a year with three firms providing them. However, very few elderly people know of their existence. That is a point that I shall return to later—not, I think, greatly to the Minister’s surprise. They have a very important part to play in the Dilnot settlement. Dilnot caps costs at £72,000, or at least that is the story. But in reality, for many of the better-off people who go into a residential home it does not cap costs at £72,000 at all. They have to pay £12,000 in living costs on top of the £72,000 but, more importantly, that is £72,000 at the rate that a local authority will pay for a home. To cite the example of someone whom I know and love, who is in a home in Oxford that costs roughly £1,000 a week, she is marvellously cared for but the local authority will not fund £500 so there will not be £500 to count towards the cap. If she wants to protect herself so that she can stay in that home for the rest of her life, as she would like, one way in which she can ensure that is by buying one of the private policies. But Ministers have spoken rather with forked tongues about this. I do not mean the Minister here in particular, but Ministers from the Prime Minister onwards who have tried to obfuscate the fact that the cap covers only the cost of a home at the rate provided by the local authority. Really, the Government have to come clean with the public about what the cap is so that they can protect themselves, and know that they need to protect themselves, if they wish to.
On care annuities, the Government have a bigger role to play. There are a lot of difficult issues here. For example, there could be tax difficulties. If you have an enhanced annuity that raises your income to a level where you are paying higher rate tax, that would be quite a difficulty. Indeed, the tax situation on these annuities is not altogether clear, partly because the Inland Revenue likes to ensure that annuities are taxed. Although they are allowed to rise in line with prices, they are not necessarily allowed to rise in line with needs. The Government have more work to do before those policies can be safely marketed, sold and developed as they should be to help people as their needs grow.
I conclude with two final sine qua nons—I am sorry, that is naughty. I have used two Latin tags in one speech, but your Lordships’ House will forgive me if nowhere else will. Those sine qua nons must be met if the financial services industry is to fulfil its potential as a complement to the post-Dilnot world and not as a substitute for the government cap or assuming that the Government will pay for everything, which is the world that we are, thank God, finally leaving.
My first point concerns regulation. I am afraid that I could speak for a long time on that but, fortunately, this is a time-limited debate. In particular, I am not convinced that the standards required of independent financial advisers operating in this field are sufficiently high. Too many advisers sell too much on the basis of too little knowledge. The standards are simply not high enough. I exempt, as of course I would, SOLLA-qualified advisers, who are very fully trained and equipped—but others are not.
There is also a worry that needs a good deal of thought, and I do not have the solution to this one yet. There is something about in the industry that I would call the fear of FOS—the Financial Ombudsman Service. Many advisers who could play a very useful role for society and themselves by getting into this business are frightened that, although they sell the policies reasonably honestly, they will be found to have mis-sold them by FOS and will be forced to pay huge amounts in compensation. That is something that the Government need to look at, to see if any reassurance can be provided if we are to have the advisers available to provide the advice that people need.
The second sine qua non is the provision of information from the Government about precisely what the scheme does and does not offer as well as what it remains for individuals to provide for themselves. Does that make three Latin tags? On the subject of information, we made very good progress during the passage of the care Bill, and I thank the Minister and his ministerial colleagues for being so open-minded about this. The Government are committed to a national information campaign and to monitoring progress in public understanding, as well as to obliging local authorities to play their part in what we hope will emerge as a holistic system of advice and information. But the devil lies in the detail. I think that it is on balance right that the detail is not in the Bill, but getting the rules absolutely right is essential and giving local authorities the resources that they need to fulfil their advice functions is also essential.
There are also in the advice field complexities entirely of the Government’s own making. It is absolutely crackers to have one date on which the deferred payment scheme is introduced, whereby people do not have to sell their house, and a quite separate date when the Dilnot scheme comes into effect. Can noble Lords imagine how in that intervening year a financial adviser is to explain, let alone provide sound advice, to a client? It is simply impossible. What happens if someone comes to him a few weeks before the new benefit rules come into effect? Does he tell them to take out a deferred payment or not, when that benefits scheme may pay a lot of those costs? This is simply mad. The Minister will be glad to hear that if he agrees to reconsider his policy on this—and I hope that he will discuss it with his colleagues—the Government would actually save a bit of money.
I conclude as I began. The private financial services market has an important role to play as a supplement to Dilnot and providing a holistic system of support, particularly in helping people who have saved hard all their lives to make sure that they protect the assets that they wish to leave to their children. However, although we have passed the Bill and it is passing through another place, there is still much work for the Government and the industry to do if it is truly to fulfil that potential.
Baroness Gardner of Parkes (Con)
My Lords, I am delighted to join in this discussion, particularly as the noble Lord, Lord Lipsey, has made many important points. I am glad to hear that he is on the Equity Release Council’s advisory board. Equity release is something people know very little about; they are suspicious of it and distrust it because they do not understand it. Equity release schemes will have to prove themselves if they are to satisfy people.
I first debated a cap in connection with care costs years ago and I think that the relevant figure at that time was less than £10,000, which shocked me a bit. Even now it is less than £24,000, so it is appropriate that Dilnot has proposed a much more realistic figure for our times. However, a great difficulty arises as regards financial products and older people. In earlier times, older people could get a bridging loan from their bank. Now it does not matter what your assets are, the banks will give nothing at all if you are over 75, and some banks will not give anything to people over 70. They do not want to know you if you are in that age group. They will give you a loan if you want to buy something to rent but, if you want to use the money to cover your own future needs, despite the fact that they can easily recoup it from the sale of the property when you die, they do not want to know.
In many parts of the country, particularly London, many elderly people are capital-rich but have only a very small income. If they wish to remain in their own home, they have to find a means to raise money. At the moment, equity release or insurance seem to be the only two available options. Kensington and Chelsea is cited as having more people who have lived in their home for more than 50 years than anywhere else in the UK. When I came to London, I rented a flat near Portobello Road. The porter of the block lived in a small house in Portobello Road. Those houses were selling in the 1950s for £750. As a sitting tenant, the porter was offered his for £450, which, sadly, he could not afford. Today, those same houses are selling for well over £2 million. If a mansion tax is introduced, the residents will be liable for that tax. Tremendous social upheaval would be caused if people who have been in their house for 50 years suddenly have to find ways to release cash in order to stay there. I have asked equity release organisations whether those people could use equity release for that purpose and was told that they could. However, if they do so, there will be less money available to pay for their care. Moreover, the relevant bodies are willing to provide only a certain amount given that risk is the big factor in all financial transactions now. Everyone wants to avoid risk and we want to be sure that the banks are sound. They are risk-averse, so the whole thing is very difficult.
As I say, the public do not know enough about equity release, and regulation is very important. I was interested to hear the comments of the noble Lord, Lord Lipsey, on regulation. There are good regulations in this field—for example, the regulated home reversion plans, sale and rent back plans and home purchase plans. The ombudsman scheme to which he is referred is, I am pleased to say, free for the complainant, which is important. People are still a bit rattled by what happened at the Co-op, which everyone had thought was so sound. However, the regulator regulates standards of behaviour, not of pricing. We need to be sure that equity release does not end up like the payday loan scheme and rip people off in a big way.
The Financial Services Authority was replaced in April last year by the Financial Conduct Authority and the Prudential Regulation Authority, so a lot of these matters are still regulated, but are the Government satisfied that the systems in place are sufficiently hands-on to cope not only with existing problems but those that might arise when the schemes to which I have referred get going?
I meet people who bought their flats years ago in what were then council blocks—some, indeed, who did so in the days of Mrs Thatcher. Obviously, the value of those flats has increased hugely over that time. However, when the right to buy council flats was introduced, purchasers had the right to sell their flats back to the council if they needed money. The councils were happy to buy those flats as it cost them less to do that than to build new ones. However, no such provision is available now. The flats have all been farmed off to housing associations and housing organisations that operate schemes for the local councils, which has made life much more complicated. I hear of people who are on a pension of £170 a week but are required to pay their share of roof repairs costing £12,000 or £13,000, which is more than their income, so these issues are difficult to assess. It is tremendously difficult for people to assess whether or not they can afford to meet the costs of their care, their daily living costs and the costs of staying in their own home. Furthermore, elderly people in particular know their way round their own property and are safer in their own property than when they move to another one. People do not fall down and break a hip in a place they have lived in for years; that happens in the new place they move to. Therefore, if people do not require full-time residential care, there is great merit in staying in their own home.
I suggest that we need a free, independent advice service. However, that is no good unless skilled staff run it. It is useless if people think that they are getting good advice only to find that the person to whom they are talking knows less about the issue than they do themselves. This issue is a huge project for the future. The Government cannot think that it is resolved, all sorts of problems will come up that we do not even envisage now. The financial services can, and should, do a lot more in this area and should adopt a positive approach. It is a difficult situation as anyone running a financial services organisation is torn between satisfying the Government that they are risk-free and have plenty of spare capital, and satisfying the people who would like to avail themselves of funds from a reliable source, who then find the whole issue is much more complicated than they thought.
I am told that there is far greater confidence in the equity release market at present. Recent figures indicate growth of 12% since last year, with £473 million of housing wealth unlocked in the first six months of last year. There is currently £251 billion tied up in home equity that could be released under equity release products. That is interesting and the release of that money makes sense, but only if it can be handled in a sound way that protects the consumer and helps people. I think that the Government support the Dilnot report, and I certainly strongly support it. We want to see it come into force and benefit people.
Baroness Brinton (LD)
My Lords, I congratulate the noble Lord, Lord Lipsey, on securing this important debate that joins together progress in health and social care for the elderly and how our financial services can help deliver this from 2016—two years’ time—in the wake of the Dilnot commission reforms.
The rising cost of care, however, has become an increasingly worrying issue. Two years ago, the commission estimated that the cost of the reforms was approximately £1.7 billion. Inevitably with an ageing society and limited resources, the state does not have sufficient funds to meet the increasing demand of social care for the ageing and disabled population. As Bruno Geiringer noted,
“with demand for older people’s social care expenditure currently touching £8 billion and actual spending sitting at around £7.25 billion, the gap between supply and demand is alarming”.
In 2011, the amount spent on care and support was 1.2% of GDP. However, in the same year, the figure was estimated to rise to 1.7% of GDP after the implementation of Dilnot.
As we have heard from other speakers, currently, individuals are meeting costs by drawing down equity from their housing assets, purchasing insurance, or taking from their pension funds. Where they do not have access to these sources, many have to sell their property, while still alive, to fund their nursing care, but, frankly, this is such a hard decision at a very difficult time in people’s lives as they face reducing their independence and losing their home. It is evident that there is, or will be, a market for the financial services to support the older generation. With a cap on the individual’s lifetime contribution, this can be much more clearly defined than under the present system.
The challenge is that the financial services industry must take greater initiative in funding these reforms. Several key financial products, some of which have been mentioned, are possible sources of funding. The disability linked annuity works by reducing the income of an otherwise flat annuity, but then doubles or trebles the income once care is required. In marketing this product, customers need to be aware of the tax treatment of annuities because they are treated as pay as you earn under current pension taxation rules. The second source of funding is products linked to housing assets. Many people fund their social care by utilising a portion of their housing equity to meet costs by either downsizing or taking out loans that are secured on their house, payable on death. The third source is linked to insurance. There is an opportunity for critical illness or life insurance policies to cover care costs. Similarly, top-up insurance can also assist individuals in the amount they spend on general living.
However, no providers currently offer pre-funded insurance, mainly because there is a lack of demand for it. This is why pre-funded insurance products have failed in the past, and consequently are no longer available on the market. However, such products could fit the new profile needed to fund social care in the future. I ask the Minister, if these insurance products are indeed beneficial in covering care costs, how can the Government help the industry stimulate demand for the products? A potential alternative to the previous options is a deferred payment scheme. Under this, people could pay insurance fees after they have died. This works by taking a portion of an individual’s life insurance and applying it towards paying for care fees.
Despite the potential of these products, there are many concerns that have been raised by both the Dilnot commission and the Government. As I have outlined, some products exist but face low take-up due to demand-side barriers, including reputational issues, a lack of public awareness, and the cost and complexity of the products. I am sorry to say that reputational issues have led to a loss of trust by many people in financial services. Research conducted by the Chartered Insurance Institute in late 2010,
“found that one in five respondents will never trust financial services again and 72% of people have not very much trust or no trust at all in financial advisers and life insurance providers”.
The most serious problem is the lack of awareness of social care costs. In several consumer surveys it was noted that most individuals do not know how much they will be paying for care in old age. The Local Government Association says that it found in a survey that,
“63% of individuals wrongly estimated the average cost of a care home as less than £25,000 per year”.
It is imperative, then, that we address issues related to engagement barriers in an effort to encourage people to seek private sector solutions. We must increase marketing for the products and raise awareness on the amount that people are likely to have to pay in future for their social care. This must start early. Worrying about it when you are 55 is, frankly, too late.
The Government have already established an expert working group that will involve the Government, the financial services sector, local authorities and the care sector. It is exploring ways in which individuals can best be directed to truly independent financial advisers, and will build links with pension benefits and other services. However, it is shocking that out of 53,000 self-funders in residential care only 7,000 received financial application advice in 2009. This may be a possible explanation as to why one in four self-funders ran out of money and sought help from the state. Clearly, there is a necessity for the support of financial industry in the form of products and advice. The Department of Health expects the financial services industry to respond by 2016. However, that is only two years away and most financial products take between five and 10 years to design before they come to market, let alone general take-up. I therefore ask the Minister, if this is the case, then where are these financial products and where is the early launch of information and advice to reassure the public on the adequacy of these financial options?
To conclude, there are too many individuals unaware of the social costs related to healthcare and the ability of financial services to help them finance costs. Although there is broad consensus that action needs to be taken, there is also a real fear that the commission’s recommendations could be left to rot because of the lack of products. This issue must be dealt with now because the financial services industry has the potential to minimise the full-scale effect of these costs on the lives of the ageing and disabled population. Equally importantly, it will remove the lottery of how much people have to pay for their social care, which has been a scandal for years.
Baroness Greengross (CB)
My Lords, I add my congratulations to the noble Lord, Lord Lipsey, on securing this debate and pointing out so much that still needs to be done to fulfil the potential of the Dilnot recommendations. While we all regret the fact that it does not seem that long-term care products will be available for some time—perhaps that was predictable and perhaps we all knew that—we have been encouraged by the Government’s decision in its Care Bill largely to accept the Dilnot commission recommendations for a cap to be created for an individual’s lifetime contributions towards their social care costs. That represents an important starting point from which new care funding solutions can begin to emerge.
An important outcome from those reforms for the industry would be the long-term stability and sustainability of the social care funding framework. A stable state framework should give consumers the confidence to invest in solutions to pay for their share of care costs. It will also have a positive impact on providers’ willingness to enter the market. However, much of the detail around the operation of the cap, in particular the modus operandi of the benefit eligibility criteria, as the noble Lord, Lord Lipsey pointed out, will be clear only when the promised guidance finally emerges from the Department of Health. It would be helpful if we had a better idea about the timetable for the appearance of that guidance.
The legislation itself will not deliver a new care funding option unless it first creates the right environment in which new markets for care funding products can develop. Accordingly, I warmly welcome the new statement of intent between the Association of British Insurers and the Government. That is an important step in the process of helping people to plan and prepare for the costs of long-term care. From my perspective, an important element of that statement is the declaration that there will be a joint initiative to raise public awareness of the reforms in advance of 2015. In the absence of such an effective information and education campaign, possibly run in conjunction with a campaign on pensions awareness, low consumer understanding about the realities of care funding—as the noble Baroness, Lady Brinton, pointed out—will continue to reduce the demand for new care funding options, which the financial services industry could potentially develop products to meet.
Currently, for those who can afford them, immediate needs annuities are the only products dedicated to care fees funding. These guarantee an income for life to fund care costs in return for a one-off premium. In the continued absence of any form of pre-funded long-term care insurance products, it is to be hoped that products such as disability-linked annuities and vehicles that combined care insurance with other protection insurance options—the so-called care conversion and hybrid protection products—will emerge. We should do all we can to encourage such innovations.
Unless local authorities, as part of their mandate to establish a competent local information service, have effective processes in place to refer future consumers—who are already emerging and may require appropriate regulated financial advice—perhaps to members of SOLLA, who are reliable and can give them the correct information, not only will the information programme be wasted but many consumers will not get the outcome their sensible considerations and planning merit. Some reassurance from the Minister on both the information programme and service would be helpful. I hope that he can give that assurance to us.
For people with property assets, one of the routes to funding care fees that emerges may be based on the current equity release products, as we have heard. For example, only yesterday the think tank Demos launched a research report which explored the possibility of helping customers to ring-fence a proportion of their housing equity to help them to meet their long-term care costs in later life. It is also important to remember that, while the proposed extension of local authority deferred payment schemes is positive, these are complex financial arrangements with long-term consequences. In many ways they are very similar to fully FCA-regulated equity release products but without the accompanying consumer protection and redress features.
Therefore, first, an information and advice campaign must be aligned with that on pensions; secondly, the guidelines should be consulted upon, and eligibility criteria and the level of need should be thought about again—it is really important that we build in some protection for people—and, thirdly, eligibility criteria should, I think, be national rather than local so that minimum standards are guaranteed and could be exceeded locally but not lowered.
The older population has within it people of all different shapes and sizes with different aspirations and needs, and a one-size-fits-all solution is inappropriate. I end by echoing the aspirations of the statement of intent, in that all of us must continue to work together to help people to better plan, better prepare and better save for care costs. We must spare no effort in seeking to identify the best care funding solutions for all our different people of all ages and backgrounds.
Lord Hunt of Kings Heath (Lab)
My Lords, I, too, thank my noble friend Lord Lipsey and the other noble Lords who have spoken in this highly informed debate. It takes us back to our debates on the Care Bill, which is still subject to deliberation in the other place.
My noble friend referred to the statement of intent and to the difficulties that the industry has encountered in producing policies, for the reasons that he set out. We have studied the statement of intent with care. I noted that the introduction refers to the following fact:
“In March 2013 the Department asked the major firms and trade associations in this field to undertake a review of how the market could develop. This reported back in July 2013 and is being published today”.
No one admires more than me the Department of Health but it does seem to have taken rather a long time for this to have been reported. I should have thought that it would have been more helpful to noble Lords if it had been reported when we were considering some aspects of the Care Bill.
The essential point of the review was that,
“there is currently a lack of demand for products and that new products might initially reach only a small market”.
Shock, horror in the Financial Times—but I do not think that my noble friend was surprised. As he said, he does not really hold out much hope that there will be a market in the future in the way that noble Lords have been talking about tonight: first, as he said, because of the difficulty of pricing products due to the uncertainties in the years ahead, and, secondly, because of the reluctance of most of us to buy those products even if the industry were certain of being able to put them on the market. I should be interested to know whether the noble Earl agrees with my noble friend’s analysis or whether he is more optimistic. If he is more optimistic, then why?
However, my noble friend pointed to what he described as two saleable products: first, point of use and, secondly, enhanced annuities. He felt that those were essential to underpin the Dilnot proposals. I do not want to go over old ground but I agree with my noble friend and other noble Lords that the real problem for us is that, while we obviously welcome the foundations laid in the Care Bill, the fact is that it does not really produce what we originally thought it would—a clear cap that people can understand. We have the £72,000 cap but, in reality, we know that it is much higher. There is the £12,000 per annum living cost and there is also the fact that the £72,000 cap is related to what the local authority will pay. We know that private funders pay more than that, and there are many suggestions that private funders are subsidising people funded by the local authority. Whether that will survive the transparency that will come in a few years’ time, I very much doubt. We argued and debated this when we discussed the Care Bill.
I know the nursing home that my noble friend referred to because my mother has instructed me that, if she has to go into a nursing home, that will be the one to which she goes. She sized it up and everyone in Oxford knows that it is a very good nursing home. However, £50,000 a year—£1,000 a week—is much higher than the local authority will be paying for the people for whom it will be responsible. Therefore, in essence, the cap will be much higher than £72,000. I agree with my noble friend that the Government need to come clean on this. We will not get the certainty that is required or achieve the required literacy among ourselves and other people unless it is clear what the likely liability is going to be for many of us and our relatives.
My noble friend raised two further points. The first concerned regulation. He is not convinced that the standards required of independent financial advisers are sufficient. This is worrying. Noble Lords will have received very interesting briefings for this debate from the Equity Release Council and the Just Retirement organisation. The Just Retirement briefing refers to polling that it commissioned, conducted by YouGov. It found that when individuals were asked where they would go for information or advice on how best to pay if they needed to organise professional care, one in five chose their local council, a similar number chose a CAB and almost a fifth said that they would go to the National Health Service—I am not sure whether that is advised, but there we go.
However, interestingly, the poll also revealed that when people were informed that they would face a large care bill before reaching the cap, almost two-thirds recognised the need for professional financial advice. That is encouraging as long as we can be sure that the independent professional advice is of a high order. I share my noble friend’s concerns that this is very variable, and I am not sure that the regulatory context in which those providing the advice operate will deliver the goods.
The second point that my noble friend raised comes back to being clear about what people are liable for. There are continuing concerns about the role of local authorities in this and their capacity to deliver. I am still concerned about their ability to undertake assessments when the new clock starts, and I have not been convinced that local authorities really do have the capacity to do the job effectively. However, that then raises the question of the nature of the very welcome campaign that the Government, as a result of our debates, have agreed to.
A national public awareness campaign is very important, but it has to be done with effectiveness and vigour. I wonder whether the noble Earl will be able to say a little more about how the campaign is going to be organised, what the budget will be, when it will be launched, how long it will run for and what partner organisations his department will work with. I refer him again to a poll by Just Retirement, which found that nearly one-third of those aged 55 and over believe that councils pay most of the cost, with individuals topping up the rest, while 40% believe that individuals pay most, with councils topping up the remainder. Many, many people do not understand the liabilities that they will face. We need to do everything that we can to ensure that people understand and can get proper advice, and we need to ensure that where the insurance market has a role to play, that role will be as effective as possible. This debate, although very short, is very important if we are to go forward with confidence in terms of Dilnot and the many liabilities that people are going to have to face in the future.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, I begin by thanking the noble Lord, Lord Lipsey, for raising this very important issue. I thank equally all speakers for their contributions to the debate. The noble Lord, Lord Lipsey, and I have conversed many times of late on the Floor of the House about the provisions of the Care Bill, so I am in no doubt that he is very well acquainted—perhaps more than most of your Lordships—with the recommendations of the Dilnot commission on the funding of care and support. However, for the benefit of others who may not have been following as closely, I will take a moment or two to refresh our memories.
The commission found that the current system is simply unsustainable and not fit for purpose. We need to ensure that we have a system that is sustainable and that people do not face catastrophic care costs. This is what the reforms we are introducing will do. The commission defined a new model for funding care and support—a new partnership between the individual and the state. It suggested that where individuals can afford to contribute they should do so but that it was simply not fair to expect people to spend their lifetime savings meeting the cost of their care. To address this current imbalance we are putting in place a cap on care costs, as recommended by the commission, to provide people with an insurance against catastrophic costs and the fear and worry that these can bring. We are also extending the means test and, as a result, we will be giving 35,000 more people means-tested support with their care costs immediately when the system comes in.
These are all ways that the state will be providing additional protection. However, we must remember that what the commission described was a partnership, and there are at least two sides to every partnership. It recommended that where they can afford to do so, individuals should also contribute. It is just as important, perhaps even more so, to make sure that we are providing individuals with the support they need to meet their contribution. We as government are providing flexibility through the introduction of the universal deferred payment scheme and additional support through the new Clause 4 duty on local authorities to provide financial information and advice. I shall say more about that in a moment.
We cannot, however, do this alone. The financial services sector needs to provide some support, too. The noble Lord, Lord Lipsey, recommended Ministers to go away and think about a postponement of the deferred payment scheme. I am sure he would agree with me that the deferred payment agreements perform a very important function and are one of the ways in which people can pay for their care more flexibly. Local authorities, as he is aware, already offer deferred payments. That gives me grounds for believing, and indeed having confidence in believing, that they have the ability to implement the universal scheme in April of next year. Given the fundamental function that these deferred payment agreements will fulfil, I am very hesitant, if not reluctant, to consider delaying the universal scheme. However, I will convey the noble Lord’s views to my honourable friend Norman Lamb.
I should like to address the precise question placed before me by the noble Lord, Lord Lipsey. He asked what plans the Government have for the role of the financial services industry in funding care provision in the light of the Dilnot commission reforms. My straight answer to that question would need to be that we have no direct plans because the industry is independent of government and, as such, we have no control over what it does. We cannot compel it to play any role, however much we might like to. I cannot say what plans we have, but I can tell the noble Lord about the joint work that we have been doing with the industry, our shared ambitions and our commitment to continue this joint working—a commitment, incidentally, reinforced by the briefing issued by the ABI ahead of this debate.
In March 2013, the Department of Health invited companies from the financial services industry to conduct a review of financial products to fund care—the opportunities that the Care Bill would provide and the barriers that needed to be overcome for it to flourish. The review reports were published on 21 January this year, alongside a joint statement of intent between industry and government, where we both committed to working together on this agenda. The industry-led review told us that the introduction of the Care Bill reforms would largely give us the right conditions for a market of care products to emerge. I do not think we should overlook the importance of that finding. Further, the reports confirmed that industry saw itself as able to play an important role in helping people to plan for their care and support needs—again, a sentiment reinforced by the ABI in its briefing yesterday.
However, that does not mean that our job is done. We need to be realistic about what we might expect, and when. More work needs to be done and there are some barriers to overcome if we are to see this market take off. Again, I have no need to familiarise the noble Lord, Lord Lipsey, with some of those barriers. Indeed, he has spoken of them in the debate. Public awareness of how care is funded is woefully low. We need to build an understanding, a greater awareness of how the system works and the need for people to plan and prepare for future care needs—something that the Government have already committed to do. My noble friend Lady Brinton asked how demand for financial products could be stimulated. We need to make sure that there is good information and advice to support and enable people to make well informed decisions about the types of care they want to receive and how they can pay for it—something that we will ensure happens through the new information and advice duty on local authorities.
To be successful, an awareness campaign needs to be delivered in partnership—national and local government working alongside the wider care sector. We are already working with partners to develop the right approach. I can tell the noble Baroness, Lady Greengross, that we have already embarked on a joint programme with local government to implement the care and support reforms and that awareness raising will be an important part of this. The department will co-ordinate the messages to ensure that a simple, coherent campaign can be delivered nationally and locally. We are engaging with the voluntary sector, care providers and the financial services industry to make sure that we can all play an effective part in communicating these reforms. The noble Baroness, Lady Greengross, emphasised the need for stability in the sector in the way these reforms are implemented. If we combine our efforts and maintain cross-party support for these reforms—which I hope and believe we can—we can ensure that this happens.
We want to see products developed and in that process we need to consider whether this could be aided by regulatory change, which was also mentioned by the noble Lord, Lord Lipsey. The department has already opened up the lines of communication between industry, the Treasury and the Financial Conduct Authority to explore this issue further.
As to being realistic about what we should expect, I want to be clear that I do not expect a big bang moment where financial services companies across the country release hundreds of new products. I want to see a sustainable market develop, with products which are designed to meet the demands of customers. These developments will be incremental and are likely to take some time. That is emphasised in the ABI report, which states that it will take a much longer period of time before younger people are encouraged to purchase care products. It also identifies products that could be adapted and brought to market in the short term. It suggests that the first step, the quick wins, would be to adapt existing products such as pension annuities, health insurance and, as my noble friend Lady Gardner said, equity release, to name but a few. The recent announcements made in January by a number of leading firms confirm that the industry is beginning to develop its offer for the market. That is a positive development.
The noble Baroness, Lady Greengross, and the noble Lord, Lord Hunt, asked about the timetable for the guidance. We will consult on the draft regulations and guidance for the April 2015 reforms in the spring of this year. We intend to consult on the draft regulations and guidance for the April 2016 reforms—that is, the cap on care costs—in the autumn of this year. We have committed to do this to make sure that they get the scrutiny they require and to give local authorities enough lead-in time properly to prepare for implementation.
My noble friend Lady Brinton asked how people could obtain information and advice about the adequacy of the products they were being offered. There is a separation of roles here. It should be the role of government to raise the levels of awareness of how care funding works and encourage people to plan and prepare—I have already talked about that—but it should not be for government to recommend or give a gold seal to any financial product. Advice is regulated precisely because whether something works or is appropriate is down to individual circumstances. That is why the noble Lord, Lord Lipsey, emphasised the point around the expertise of SOLLA representatives, for example.
The noble Baroness, Lady Greengross, suggested that the eligibility criteria for deferred payments should be national. Eligibility criteria for deferred payments will be in national regulations to ensure that there is protection for those people who face having to sell their homes in their lifetime to pay for care—that is the minimum offer. Local authorities, however, will have discretion to be more generous than the minimum offer, and we will consult on all the draft regulations and guidance that are to come in next year, as I have mentioned, in the spring of this year.
The noble Lord, Lord Hunt, returned us to the issue of the cap on care costs and suggested that, in reality, people would find themselves paying more. I would not seek to argue with the points that he and the noble Lord, Lord Lipsey, made. It is a difficult issue. We want to extend state support for social care to tens of thousands of people who get little or nothing under the current system and the Care Bill establishes a legal framework to enable this. We would like to be able to set a lower cap, which may well be possible in the future, but we also need to live within the broader economic constraints on public spending that we currently face. It is a matter of finding that balance at the current time. We have committed to reviewing this question every five years to ensure that we continue to get that balance right.
I am optimistic that the financial services industry will step up to the plate and play a role in helping people to plan for their care costs. We will encourage it to do so. Our continuing work with the industry is a key pillar in our efforts to support individuals in the new partnership recommended by the Dilnot commission. There is still a long way to travel but the first stirrings of growth are beginning to show.