Friday 18 October 2013

Long Term Care – Changes that could affect your financial planning

The care of our elderly folk and the cost of this care provision has long been a topical subject in financial planning. As a specialist subject, financial advisers have to be qualified to provide advice in this ever changing area of advice.

In July 2013, a Government consultation paper was launched to consider reform of the method and timing of paying for an individual’s care costs relating to either residential care or care provided in their own home. The idea was to bring reassurance to millions of people who could be caught in this situation, by ending what many would argue was an unfair system of facing unlimited care costs or selling their own home to pay for these costs. This caused much distress.

Means Tested Again?

The fine print in the Government’s plans show that people with relatively modest assets (excluding their family home), of below £23,250, will only be eligible for the deferred payment plan to pay for their care costs. Therefore, a large number of people will not now be eligible for this scheme and will have to pay towards their own costs while their assets are above this level.

Government Backtracking?

This is seen by many as the Government breaking a pledge they made after the well-received Dilnot commission report on the funding of Long Term Care was published. The Government pledged to introduce (in 2016) a cap of £72,000 as the maximum amount an individual would have to pay in their lifetime towards their care costs, along with new rules on eligibility on state support. The scheme also promised that if anyone was facing the prospect of having to sell their home to pay for care costs they could ask the local authority to provide a long term loan which would eventually be paid out of the individual’s estate (i.e. deferred payment plan).

Deliberate Asset Deprivation

Many people are faced with having to pay for their own care during their own lifetime, while their assets (excluding their main home) are valued above £23,250. People often believe that they will simply be able to reduce their assets (for example, by gifting or transferring them to others or placing them in trust), such that their total assets are below the £23,250 limit and they will be able to benefit from the Government schemes. However, if the individual Deliberately Deprived themselves by disposing of assets for this reason, or the Local Authority believes that this is the reason, then the Local Authority has the power to recover costs which they have paid towards the individual’s costs.
 
Summary

Whenever a government indicates that they are going to implement new reforms then the devil is always in the detail. At Chapters Financial, we also maintain a view that it is important not to take action on suggested legislative change until it has occurred and is in force. It is all very well to listen to the speeches and rhetoric, however it is the actual legislation which matters. If an individual or family is facing the prospect of paying for long term care costs or they want to ensure that this provision is planned for in the future then we believe they should seek professional independent financial advice.

Figures provided in the content of this blog are for tax year 2013/2014 and are subject to change in the future. No individual advice is provided in the content of this Blog.

The team at Chapters Financial can help you with your financial planning including long term care planning and look forward to working with you.

Simon Hewitt BSc (Hons) DipPFS
Financial Planner
Chapters Financial Limited
 
Chapters Financial Limited is Authorised and regulated by the Financial Conduct Authority, number 402899.

Wednesday 2 October 2013

Kicking the US fiscal ‘Can’ down the road

There is a saying of “Kicking the can down the road”, which means to delay a decision in the hope that the problem or issue will go away or that someone else will make the difficult decision easier to swallow, the later it is made. This saying has also recently been applied to the ‘Fiscal Cliff’ of the American fiscal deficit and the ways that it can be brought under control. A hard path to negotiate if ever there was one.

The US ‘Fiscal Cliff’ is the deficit which would have been caused by simultaneous changes in proposed tax rates combined with government expenditure. This was due to occur on 31 December 2012 until the US politicians (Senate and House of Representatives) finally agreed to extend the US Government’s borrowing limit/ debt ceiling. However, they only extended this by a matter of months and effectively “kicked the can down the road”.
You may have noticed in the media recently that the US government has started a partial shutdown after both Houses of Congress failed to agree a new budget. This has meant that the federal government has to save running costs and to achieve this has partially shut down non-essential departments and their related personnel. This could potentially affect more than 800,000 federal employees who will be on unpaid leave until the budget can be agreed. The knock-on effect to America’s GDP could be significant if the situation is sustained for a long period. The shutdown is significant, but is not the ‘main event’. The debt ceiling is.

Effect on the US Economy and Dollar

The planned budget agreement to resolve borrowing limits was meant to be ratified by both Houses of Congress by 30 September 2013. As you may know, this was not achieved. One consequence of the first shutdown in 17 years has seen an initial weakening of the dollar on 01 October 2013. Some commentators in the media are suggesting that these recent events could derail the world’s largest economy. I believe this is somewhat of an extreme view and do not hold this opinion. But the short term impact will be felt by the markets while uncertainty remains.

Outlook for US Economy

I believe that the main thrust of this impasse is partly due to President Obama’s health care bill and this is effectively being seen by some as a game of poker between the Democrat held White House and Senate, and the Republican held House of Representatives. Who will blink or fold first? As is usual in politics, I expect that some hurried negotiations will take place in some corners of Washington which will allow a new budget to be in place with a revised healthcare bill and the proverbial can will be kicked down the road again – possibly until there is a change of occupier in the White House or balance of power in the Houses of Congress.

At Chapters Financial Limited we remain optimistic for the outlook of the US economy and financial markets, although allocations to this area should be invested as part of an overall investment allocation process.

Past performance is not a guarantee of future performance. Fund values and currency values can fall as well as rise and are not guaranteed.

It should be noted that as financial planners, Chapters Financial remain positive about North America as an investment area and of the dollar as a currency.  

Each investment and its allocation/ recommendation is different and individual to the Client. To consider your circumstances with regard to savings and investments, you should take individual financial advice. No individual advice is provided in the content of this Blog. The team at Chapters Financial can help you with your planning and look forward to working with you.

Simon Hewitt
Financial Planner
Chapters Financial Limited

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.