Funded Family Care was rushed through under urgency in 2013 and allowed family members other than spouses to be paid minimum wage for caring for loved ones with high or very high needs.
It also included the 4A clause that prevented court action on the grounds of discrimination.
John Forman, whose twins Timothy and Hollie are in their 40s and suffer from the rare lysosomal storage disease alpha mannosidosi, said the 2013 changes were a step forward - previously family carers received no pay - but three steps back.
"It was so punitive. Many families considered it just absolutely insulting.
"My daughter, who has now lost most of her vision and has dementia as well, is theoretically my employer and is responsible for ensuring that I don't overwork myself, take holidays and take reasonable breaks. It is a nonsense, and it's so good to know that the Government has announced that they're going to undo that."
He said his family had the fortune of having income, but today's announcement would be especially beneficial for those who had given up incomes to look after spouses or children under 18.
Christchurch woman Gillian Kney, 73, who has arthritis and looks after her husband Franz, 78, who has Parkinson's disease and dementia, said being paid to care for Franz would make a huge difference.
"It would improve our standard of living. It would mean I didn't have to call on my daughter all the time, and she has a young family and owns a business and works six days a week, and she does a lot of work for us and I wish I could reciprocate in some way.
"The biggest bugbear of all is transport. At this point we don't have enough for taxis."
Under the new policy, family carers will be paid between $20.50 to $25.50 an hour, depending on their years of service.
The Government expects 640 people would be paid under the new scheme, which would cost $32 million over four years.
"People will be able to be paid for care they are already providing ... [and] not be struggling financially to provide care that the state would have paid if it had been someone other than a family member," Genter said.
The pay rates are the same that apply following the pay equity settlement for care and support workers in New Zealand's aged and disability residential care and home and community support services.
Asked why it had this long to announce since the previous September announcement, Ardern said Budget bids had to be approved.
She said the Government was not changing the assessment process, and other potential changes to the disability support system were being worked through.
