Only a small minority of elderly men and women will benefit from the governments cap on the costs of social, the Institute and Faculty of Actuaries has warned.
A £72,000 cap on an individual's lifetime care costs is set to be introduced from 2016, but an IFoA analysis found those would only kick in for those individuals facing catastrophic care costs. It would also not offset or replace savings as a key means of funding care.
The institute's report noted that the cap would only cover local authority costs and people on average are expected to pay £140,000 (including daily living expenses) before the cap would begin to apply. This could increase to around £250,000, even allowing for the cap, if an individual is in long-term care for 10 years, said the IFoA. In all, only around 8% of men and 15% of women are likely to benefit from the cap.
The report found that pensioners in London entering a residential care home aged 85 could reach the cap in around 4 years, spending about £117,000 before reaching the limit. In the West Midlands, however, a pensioner would have to spend around £170,000 in seven years before reaching the cap.
Report author Thomas Kenny, said: 'Recent research data shows that one in three women and one in four men aged 65 today is likely to need care.
'Yet the average disposable income for retired households was £18,700 in 2011/12, which is below the level required to fund the average long-term care costs before reaching the cap.
'Anyone who is expecting that the cap will pay for care is in for a shock. The care cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.'
The IFoA recommends that some regulatory and tax changes would help develop the use of pensions for long-term care provision. It also suggests that good information and advice are needed to combat diverse care needs and complex cost structures.
Kenny continued: 'We also found that there is no silver bullet - no one product would suit everyone's personal circumstances to help them meet care costs.
'In the report we consider a number of existing and new products which, with the tax incentives, could help people plan ahead, including a new Pension Care Fund (PCF).'
The PCF would be a ring fenced long-term care savings fund that would sit within the framework of a defined contribution pension scheme.
Savings would be treated like a pension for tax purposes and any money accumulated that was not used to fund care could be passed on, free of inheritance tax, for use as a long-term care fund by a spouse or other beneficiary.
A Department of Health spokeswoman said: 'We are introducing the first ever cap on care which will protect people from catastrophic care costs and deferred payments so no one should be forced to sell their home in their lifetime to pay for care.
'On top of this we have increased the means testing level so that government help kicks in far earlier than before, meaning two thirds of people who reach the cap will pay less than £72,000.'
The department claimed that the current system for paying for care was 'completely unfair', saying that people with more than £23,250 were 'literally on their own' and many had to sell their homes in a time of crisis to pay for the care they need.
'Our reforms will mean more people get financial help sooner and keep more of their assets,' added the spokeswoman.