With almost 500,000 people living in care homes in the UK in 2020, and an ever-increasing ageing population, taking care of care fees might be one of life’s biggest financial obstacles we have to face.
Due to social, economic, and medical advances, life expectancy in the UK has increased significantly, with no signs of slowing down. As a result, the number of active years in retirement and the need for long-term care in later life has increased simultaneously.
But, with the care fees being so hefty, you might be worrying about how you can afford it in retirement. Will you need to sell the family home or eat into your nest egg? Neither is ideal, but it might be the price you have to pay for your comfort later in life.
So, how much is enough? And what options are available? Let’s delve a little deeper into planning for the unpredictable cost of care and look at the new Health and Social Care Levy to hit the headlines.
Taking care of care fees
How much is enough?
Unfortunately, social care is rarely free, and it’s a bit of a postcode lottery – with the weekly cost of residential care varying by more than £800 across Great Britain. London was the costliest area, and Stoke-on-Trent, Blackpool and Merthyr Tydfil were the cheapest.
According to carehome.co.uk, the average weekly cost of living in a residential care home is £704, rising to £888 for a nursing home. The monthly average cost of residential care is £2,816, and nursing care costs £3,552 on average.
It’s important to note the difference between a care home and a nursing home too. Residential care homes provide help with personal care (like washing, dressing, and going to the loo), whereas nursing homes provide around the clock medical care by a qualified nurse, which is the more expensive option.
The amount you pay will also depend on the level of care you need and where you live, and if you qualify for any support – self-funders pay 30% more on average than local authorities. To help, here’s a care fee calculator to provide a rough estimate.
How do you pay?
People often assume that they’ll be footing the bill when it comes to their care fees. However, there are different options available depending on your circumstances:
Local authority funding
Currently, for your care costs to be supplemented by the local council, you must have a very high level of need, as well as savings and assets worth less than £23,250 in England.
An assessment of your needs is needed first to see if you qualify for support. Once that’s been established, a financial assessment officer will look at your earnings, pensions, benefits, savings, and property. For those with less than £14,250, the local council will pay for your care. If your capital is between £14,250 and £23,250, a means test will determine how much you pay, and the council will fund the remainder. Anything above that means you won’t qualify for help from the local authority.
Given this, it may be tempting to reduce your assets to qualify for support, but there are strict rules on deliberate deprivation of assets. So, before you start giving your money away to avoid care fees, be mindful of this.
NHS Continuing Healthcare
NHS Continuing Healthcare funds care fees for those eligible and assessed as having a ‘primary health need’. But, it’s not easy to qualify, and the rules are complicated.
With almost half a million people in the UK living in care homes, around half of them are self-funders. Wherever possible, private income, savings and pensions will go towards care fees. However, if this isn’t enough, you may face the prospect of selling your home to release more capital, which is never an easy decision to make. However, there are other options you should explore before you think about listing your property for sale, such as taking advantage of state benefits, renting out your property, or requesting a deferred payment agreement from your local authority. There are also financial products, which may be appropriate depending on your circumstances.
But, before you make any financial decisions to do with your care fees, we recommend you seek financial advice.
Health and Social Care Levy
Earlier this month, the government announced a new tax to ease the strain on the health and social care system. Employees, employers, and the self-employed will see their National Insurance (NI) contributions increase by 1.25% from April 2022. From April 2023, the Health and Social Care Levy will replace the NI increase. Although the net effect appears the same, pensioners in employment (who don’t pay NICs) will start to pay the levy. The government expects these tax changes to raise £12bn and help combat the burden.
An amount will then be transferred over to the NHS and social care system over the next three years. For those entering care from October 2023, the maximum amount individuals will pay in care fees during their lifetime will be capped at £86,000 (not including food and accommodation). Once you reach the cap, ongoing costs for personal care will be paid for by local authorities.
Financial planning for long-term care
Understandably, taking care of your care fees can be a little daunting. Naturally, we don’t want to assume the worst will happen, which might explain why only three in ten people have set aside any cash or have a plan in place to fund later-life care. However, if we get into the habit of hoping for the best while planning for the worst, you’ll find your list of concerns diminishes quickly.
And while you, hopefully, might not ever need to use such funds, if you’re not already factoring care fees into your retirement plan, then you should. As with anything in life, it’s all about balance; balance living now with planning for the future.
The best way for you to fund long-term care will depend on your specific financial situation. Talking with a financial adviser will help you understand your options and the cost of different products. Before you do that, here are some key things we recommend you think about when considering your long-term care plan.
Build your support network
Later life planning is an ideal time to consider appointing a lasting power of attorney (LPA).
Appointing a lasting power of attorney ensures that you have a trusted individual acting on your behalf should you no longer be capable. There are two types of LPA: health and welfare and property and financial affairs. You can choose to have both or just one.
It gives you more control over what happens should you have an accident or illness, or you can’t make your own decisions anymore.
The health and welfare LPA decides on your medical care, going into a care home, and life-sustaining treatment.
The property and financial affairs LPA have the power to make decisions about your bills, benefits, and your assets. So, should you need to use any of these to fund your care, they would have the power to organise this for you.
You can register your LPAs directly with the Office of the Public Guardian. However, we recommend you seek the advice of a solicitor, as it’s not a process you want to get wrong.
Make your wishes known
Research by Canada Life found that three in five UK adults have not written a will, totalling 31m people whose property and assets could get left to someone they have not chosen themselves.
To make sure that your assets are distributed in line with your wishes when you die, you will need to make sure that you 1) write a will and 2) update it regularly.
Protect your wealth and your health
It’s a real catch-22. You want to ensure that if you need it, you are well looked after. But you also want to pass on your wealth to your loved ones.
It might be tempting to passing on your assets to others to qualify for local authority support, but it might not provide you with the desired result. Firstly, gifts might have tax consequences, whether it’s capital gains tax or inheritance tax. Secondly, the local authority has the power to prove that such gifts were an act of deliberate deprivation and still include them in your assessment.
The Councils also cap their contributions and often use the cheapest in the area as their benchmark. And if they are footing the bill, they also choose which home you go to, so if there’s a difference to pay, it’s down to you to top that up.
So, it is a difficult balance to strike between protecting your health and your wealth. As well as making sure you have enough just in case, but don’t go without either.
Look at your entire situation
It’s not just about holding a chunk of money aside, or thinking the only option you’ll have is selling your home. Speaking with a financial planner will help you understand all the options available to you.
The moral of the story is that paying for care fees can be complicated. There are lots of rules and options that are hard to navigate without the help of a professional. The involvement of your family in any of these complicated and highly emotive financial decisions is also paramount.
If you have any questions or want to discuss taking care of your care fees, please feel free to get in touch with us any time to have a chat with one of our independent financial advisers.