3 Ways Your Retirement May Change After the Election
By: Tim Bennett
26.05.2017
Tim Bennett sums up how retirees could be affected by Theresa May’s manifesto proposals
Another year, another vote. On 8th June we will all be deciding who will form the next government and take us through the forthcoming Brexit negotiations that will determine the terms on which we trade and operate outside of the EU. And whilst the polls have shown themselves to be less than reliable in the past (think 2016’s Brexit vote here and the election of Donald Trump in the US) it does seem fairly likely that Theresa May’s Conservatives will win. If they do, savers and investors should be aware that things are set to change as far as retirement is concerned. Whilst we don’t know at this stage exactly how manifesto pledges will be enacted should the Conservatives win, here is a summary of three key changes that are highly likely to take effect if they do.

An end to the Triple Lock

Under the current rules, the annual increase in the State pension is determined by comparing three percentages and applying the highest. These are;
  • The general rate of inflation
  • The rate of wages growth
  • A fixed 2.5%
The impact was seen as we moved from the tax year 2016/17 to 2017/18 as the maximum State Pension (subject to someone having made sufficient National Insurance contributions) rose to £159.55 per week, up from £155.55. However, the Conservatives have pledged to remove the fixed 2.5% element by 2020, making the Triple Lock into more of a Double Lock.

IMPACT

As is often the case with government rules changes, the principle here matters perhaps more than the numbers. Although wage growth is very subdued at the moment, inflation has been rising off a low base so by 2020 the annual increase in the State pension may be above 2.5% anyway. What is more worrying is that this signals an end to the principle of locking the State pension into any guaranteed system of minimum annual increases – pensioners will want to therefore watch this space carefully.

Means-tested Winter Fuel Payments

The Winter Fuel Payment is currently a fixed annual payment – capped at £300 – that is paid to retirees more or less regardless of their personal financial circumstances. Rich or poor you can qualify for the maximum if you meet the relevant criteria, the main one of which is your age when you make a claim.

Under the latest proposals this payment will only be available to those deemed to be living in “fuel poverty”, which is defined as a household that spends 10% or more of its total income on domestic energy.

IMPACT

The universal nature of the Winter Fuel Payment has been criticised in the past for gifting money to wealthy retirees who may not really need it. Indeed some have dubbed it the “Winter Cruise Payment” as a result. It’s true, therefore, that moving to a means testing model shouldn’t affect those who will still qualify and may not make a material difference to retirees who don’t.

However, once again it is worth noting that this change would represent the Conservatives stepping away from a universal benefit in favour of a means-tested one. This change of stance may ripple out to other areas of the benefit system in due course – therein lies its real potential significance.

Care costs overhaul

By far the most contentious of the current proposals, as far as retirees go, are the potential changes to the way that care fees are funded. So much so that Theresa May effectively back-tracked on the issue of a care cost cap the moment they were announced (see below).

This is a complex area so here is a short summary. Please get in touch with an investment Manager to discuss how these changes may affect you in more detail.

MEDICAL VERSUS NON-MEDICAL CARE

First off an important distinction. If someone is diagnosed as needing long-term medical care for certain conditions determined by the government and the NHS, then the resulting care is provided and funded by the State regardless of the amounts involved and/or the financial position of the beneficiary. However, where someone simply needs help at home with day-to-day tasks and/or extra nursing care they are expected to pay their own way.

AT HOME OR IN A HOME?

The current rules make a distinction between someone who moves out of their own home and into a residential home and someone who stays at home and has extra care there. The key difference is that in the latter case, until now your home is not automatically assumed to be available to fund care. One of the key proposed changes is that, wherever care is provided, your home should be considered fair game when it comes to paying for it.

A FLOOR, OR A CEILING, OR BOTH?

The next potential change relates to how you are expected to run down your assets to pay for care. At the moment, all of your assets (investments, cash, home) are deemed available to pay for it bar the last £23,250 if you are receiving residential care. However, your main home is excluded if you are being cared for in it. There are other important exceptions to this, the main one being that your home is not expected to be made available to fund your care under any circumstances if your spouse or partner is still living in it.

Under the latest proposals, however, the government would ring-fence £100,000 per person which they can hang onto regardless of the cost of care but everything above that should be made available to pay for non-medical care regardless of where it is provided.

The big back track relates to whether or not there should also be a cap placed on the total cost of someone’s care. David Cameron’s government had mooted such a cap and it now seems, after a media-lead outcry, that the current government will look at imposing a cap too. What is not known is when this would come into play nor the amount.

IMPACT

The next potential change relates to how you are expected to run down your assets to pay for care. At the moment, all of your assets (investments, cash, home) are deemed available to pay for it bar the last £23,250 if you are receiving residential care. However, your main home is excluded if you are being cared for in it. There are other important exceptions to this, the main one being that your home is not expected to be made available to fund your care under any circumstances if your spouse or partner is still living in it.

Under the latest proposals, however, the government would ring-fence £100,000 per person which they can hang onto regardless of the cost of care but everything above that should be made available to pay for non-medical care regardless of where it is provided.

The big back track relates to whether or not there should also be a cap placed on the total cost of someone’s care. David Cameron’s government had mooted such a cap and it now seems, after a media-lead outcry, that the current government will look at imposing a cap too. What is not known is when this would come into play nor the amount.

IMPACT

This is the space that many retirees will want to watch closely. In particular, keep an eye on four things;

  • Changes to the definitions of medical versus domiciliary care – the media title “dementia tax” stems from the fact that currently this condition is usually classified as the latter rather than the former and it therefore doesn’t normally attract full, if any, State care funding
  • Clarity around the level of any cap on total care fees. We have been here before with David Cameron’s proposals and the devil, as ever, will be in the detail so be wary of placing too much faith in media headlines
  • Changes to the operation of the proposed £100,000 wealth “floor” – the issue as to whether a home should be considered an asset that is used to pay care costs and under what circumstances, has caused much debate and will continue to do so
  • Details of any government –sponsored equity release scheme. Current private sector equity release schemes, whereby money is released from a property ahead of its eventual sale, can be expensive and restrictive. A shake-up would be therefore welcome but the mechanics of any government-backed initiative here are still unclear.