Care Bill [Lords]

Written Evidence Submitted by the Equity Release Council (CB 11)

Overview and summary

 

· This briefing has been prepared by the Equity Release Council for the Public Bill Committee scrutinising the Care Bill. The briefing note covers the background to equity release and the Equity Release Council as well as the two areas of concern – the role of financial advice, and the universal deferred payments scheme.

· It is set out in the context of equity release products being a potential funding option for individuals to use when paying for their own care.

· The Council is keen to ensure that individuals facing the financial cost of social care are able to do so with the support of a wide range of financial products, including equity release, in a competitive market. Given the complexity of social care funding, the Council is keen for individuals to have the support of expert regulated financial information and advice, and hopes that Parliament and the Government will recognise these concerns.

Background to equity release and the Equity Release Council

 

1. Equity release allows individuals aged 55 and over to release money from the property they live in without having to make any monthly repayments. Providers of both of the two types of equity release – lifetime mortgages and home reversion plans – are regulated by the Financial Services Authority, and give home owners the ability to draw a lump sum or regular smaller sums from the value of their home, while remaining in their home. Equity release can be and is used for a range of purposes, including funding of social care.

2. The Equity Release Council is the industry body for the equity release sector. Born from an expansion of the remit of SHIP (formerly Safe Home Income Plans), the Equity Release Council represents the providers, qualified financial advisors, lawyers, intermediaries and surveyors who work in the equity release sector. It currently has just under 300 members, and represents 90% of the sector.

3. The Equity Release Council is keen for policymakers to consider equity release as one of a range of options in funding retirement, including funding social care. The Council has been engaged in this issue since the draft Care Bill was first published, having submitted evidence to the Joint Committee on the Draft Care and Support Bill and to the Department of Health’s consultation on the practicalities of the reform, and through the Lords stages of the Care Bill.

The Council’s concerns relating to the Government’s reforms to care

 

4. The Council is generally strongly supportive of the Government’s proposed reforms to care. Our members welcome the policy intention behind the Bill of establishing a single framework for care and support as well as the creation of a ‘cap’ on social care funding.

5. Financial planning for one’s retirement – including taking maximum advantage of one’s assets and state benefits – is a complex area, shown by the constant coverage not just in the personal finance columns of the press but also front page stories which discuss and debate entitlements to the state pension, how to purchase the best annuity, and of course how to pay for social care.

Paying for care & regulated financial advice

6. The Government’s reforms include two welcome changes that help protect individuals of all backgrounds. The first is the proposed increase in the asset threshold for means-testing to £118,000 from £23,250, which will help many more individuals pay quite significant sums of money. The second is the principle of the cap on the adult social care costs any individual must pay. However, it is important that people understand what the cap will cover and what it will not.

7. Many individuals will still have to pay quite considerable sums of money. Providing care is expensive and will continue to be expensive. In light of this, we welcome the financial certainty that the reforms give individuals which help them more reliably plan for their retirement. Equity release can be one of a range of options individuals can consider in paying for care in their own home (domiciliary care).

8. Clause 4 of the Bill requires local authorities to provide an information and advice service for social care, including relating to the finances of care. The Council welcomes the presence of this clause but believes it should be strengthened given the complexities of care funding.

9. The Equity Release Council’s position is that those who are likely to commence paying substantial sums of money for their care should be encouraged /facilitated towards independent expert financial advice.

10. This should be given by a qualified adviser regulated by the Financial Conduct Authority, who has an appropriate accreditation in giving advice on older people’s issues (such as the CF8 qualification from the Chartered Insurance Institute or the Later Life Adviser Accreditation awarded by the Society of Later Life Advisers).

11. Independent regulated financial advisers are fully trained to give advice on a range of issues and products and are able to answer complex questions which relate to care funding. They are best placed to understand the needs of individuals after considering all the aspects of that person’s life, including assets, income, expenditure, and family needs.

12. It should be noted that existing services such as the Money Advice Service and the Citizens Advice Bureau do not have sufficient capacity or expertise to provide the advice needed – and cannot be expected to replace the role of independent financial advisers who are able to advise people on products to help fund their care needs.

13. During the House of Lords stages of the Bill, the Council briefed peers on the importance of regulated financial advice. While the Government has already sought to strengthen the independence of financial advice in the Bill, and has made a number of welcome commitments at the dispatch box in the House of Lords, the Council continues to believe that regulated and qualified independent financial advice is in the interest of the person with the social care need.

14. The Council is still concerned that the Government has not yet recognised the need for financial advice to come from people properly qualified to give it. Peers have warned of the consequences of a lack of regulation, and we agree that the Government still needs to reflect further on this before ruling out the idea of some regulation on care-related financial advice.

The universal deferred payment scheme

15. The Government’s reforms propose the creation of a universal deferred payment scheme (clauses 34-36), aimed at ensuring that people do not have to sell their home in their lifetime to pay for residential care.

16. Deferred payment schemes are complex financial arrangements with long-term consequences, which would have the same effect on the owner and their estate as equity release products such as a lifetime mortgage.

17. The Financial Conduct Authority’s rules are that giving advice on equity release products is a regulated activity, in light of the complexity and impact of the products.

18. The Equity Release Council goes further than FCA rules, and has established standards which require that providers of equity release products must take reasonable steps to ensure that:

· there has been a full discussion as to the implications of the plans for the customer and their family and that the customer was made fully aware of such implications;

· the customer has been advised of the risks, features and benefits of the relevant product;

· the customer has considered all alternative courses of action;

· the customer’s physical and mental health has been considered in relation to the suitability of the plan

19. The Council’s safeguards have evolved due to many years of experience in dealing with equity release customers and it continues to change – for example, in late September an additional requirement was introduced, requiring advisers to present every customer with a suitability report to clearly show the reasons why a particular product has been recommended for their personal needs.

20. The Council has put these safeguards in place to protect and safeguard consumers, who may be at a difficult time in their life and who are not used to dealing with such significant sums of money. The safeguards also ensure that customers benefit from the skills, training and diligence of the professionals involved.

21. For the same reason, the Council believes that people must have independent regulated financial advice before taking out a deferred payment arrangement.

22. There have been substantial discussions on the universal deferred payments scheme during the House of Lords stages, between Labour peer Lord Lipsey (a member of the former Royal Commission on long term care, and a member of the Equity Release Council’s advisory board), and the Minister, Earl Howe.

23. The Government has made welcome comments on the Council’s concerns. In particular, Earl Howe agreed that it was not enough for local authorities to hand out information leaflets and that they needed instead to take proactive measures to ensure individuals received tailored advice. He also said that the Government has recognised the need for sound independent advice.

24. However, the Council believes there are still concerns that need to be addressed. The first is to ensure that the same level of safeguards and protections for customers of equity release products are also in place for those who take out deferred payment arrangements.

25. The Council also wishes the Government to give a stronger commitment to ensuring that individuals only enter into deferred payment arrangements because they are the most appropriate for their individual circumstances, and to ensure that staff who end up providing advice on deferred payment arrangements recognise the complexity of the arrangements, and do not end up providing incorrect or misleading advice.

26. Finally, the Council is sympathetic with the argument of the Local Government Association that there should be a single national deferred payment scheme, rather than having each single local authority run their own scheme.

Conclusion

 

27. The Council is keen to ensure that individuals facing the financial cost of social care are able to do so with the support of a wide range of financial products, including equity release, in a competitive market. Given the complexity of social care funding, the Council is keen for individuals to have the support of expert financial information and advice, and hopes that the Public Bill Committee will recognise these concerns.

January 2014