Whether you are reading this because you are in the process of arranging long term care or you just want to be prepared for later life, it is important that we are all clear about the costs that are involved and whether we will be held accountable for paying some or all of any care fees that may be required.
With average annual costs of around £30,000, it’s little wonder that an increasing number of people are starting to question who exactly is responsible when it comes to paying long term care costs either for themselves, a partner or parent.
At the end of the day we all want to look forward to a happy and financially secure retirement but the growing issue of who pays for long term care is not going away so it does pay to be aware of the facts and where at all possible, prepared.
Care Costs in more detail
There are various levels of care and support available so costs depend on type required and also whereabouts in the UK you live:
Care at Home: most people, where possible, prefer to remain in their own homes for as long as possible and receive support with either domestic chores and / or personal care. These costs will depend on the number of support hours required.
Care Homes with no nursing: this type of residential care home offers help and support with personal care, such as washing, eating, dressing and mobility. The average cost for this kind of care home is around £27,000 a year or £530 a week.
Care Homes with nursing: this type of residential care home offers a higher level of support in addition to nursing care, supplied by qualified nursing staff. The average cost for this kind of home is typically around £38,000 a year or £730 a week.
How much could you have to pay?
In a recent survey by the Equity Release Council, a third of over 55 year olds thought that they would need some form of long term care with 38% stating that they wouldn’t be able to afford it. As half of those surveyed believed the cost of long term care would be around £16,000 a year, it seems as though we could be storing up huge financial problems both for us as individuals and local authorities for the future.
So what care costs could you be responsible for, if any? This will depend on how much your assets are worth and a local authority means test.
How much are your assets worth: Currently if you have more than £23,250 in assets or savings, you are required to pay some or all of the care home fees.
These assets will include your home unless a partner, relative who is either over the age of 60 or incapacitated, or a dependent child still live at the property.
What is the local authority means test: The local authority is tasked with carrying out a means test which takes into account your assets, including any investments, savings, shares and your home if applicable, to establish whether you are above or below the £23,250 threshold.
As I mentioned in my previous blog “What is deprivation of assets?”, if the local authority believe that you have given away some of your possessions, property or money in order to fall below this threshold, this will be classed as ‘deprivation of assets’ and the assets in question will be included in the means test as if you still owned them.
Will you qualify for financial help?
If your total assets exceed £23,250 (England) then you will be required to pay 100% of the care costs, however if your assets fall below this figure, then you will be entitled to some level of financial support. Having said that you should be entitled to fully funded support should your assets fall below £14,250.
It’s worth mentioning that if you choose a care home that is more expensive than one classed as an acceptable cost by the local authority, then you may have to pay the extra costs so do check with your local authority first.
How will you pay for your Care Home Fees?
If you fall below the lower threshold of £14,250, or have money to hand in the bank or sufficient income to pay for your fees, then it’s unlikely that you will need to take more drastic steps like having to sell your assets in order to cover ongoing care costs.
If however you rank amongst the many who need to take some form of action in order to find the money to pay for care fees, there are a number of options available to you.
Use your home: Your home is likely to be your largest asset and therefore could provide a number of solutions, depending on how much equity you have and its value. For example you could:
1. Rent your home and use the income to support your monthly fees – this will only work if the rental income is sufficient to cover costs or can be topped up with other pension, income or investments funds.
2. Use an Equity Release Scheme to release capital which will pay for fees, either as a lump sum or by investing it so it produces an ongoing income. A specialised provider, such as, Key Retirement Solutions, can advise you on your options. (Equity Release could also be used as a way of freeing up some capital to adapt your own home, so you could stay in it for longer.)
3. Opt for a deferred payment scheme. If your assets are less than the £23,250 excluding your property and you don’t wish to sell, your local authority may agree to place a legal charge on the property in order to recoup the cost of the care home fees once the property is sold at a later date.
4. Sell the property.
Use your savings: the simplest of all options is to use your savings to pay for the care home fees until your assets fall below the means test limit, at which point you should be eligible for local authority funding.
Produce an income from your capital: if you are lucky enough to have a large accessible cash sum, you could invest for the long term in order to produce an income. As you won’t know how long care will be required, it is worth seeking specialist advice on your options if you are thinking of going down this route.
Purchase a Care Fee Annuity: similar to the option above, you could purchase an annuity that will give you an income for life to supplement the money required to pay for your fees. You may have heard of these in connection with pensions, but annuities can also be used for care home fees; your return being based on the capital sum invested, your age, health and lifestyle.
Get help from the family: You may find that your family are able to assist with some or all of the fees to help you get into the nursing home of your choice.
So who will pay for your care home fees? Well the reality tends to be a combination of at least two of the above. It’s a shocking thought that over 130,000 people will need some form of care support this year alone, only half of which will fall outside the means test which means that more than 65,000 will be required to pay some if not all of those ever increasing care home fees.
The government is planning to introduce a cap on care home fees from 2016 which will ensure that no-one in their lifetime will have to pay more than £72,000. The finer detail is still being finalised but one point worth noting is that this figure relates to your lifetime care and not just end of life care fees.
Currently, the majority of long term care costs are not planned for which limits the payment available at the point of need. With our increasing older population, our need for long term care also grows and whilst many of us may be fit and healthy today, no one can predict tomorrow.
Once the government’s Care Bill is finalised we should see a new breed of financial long term care products on the market, but until then it makes sense that we should at least be carrying out our own “later life planning” review, whether that’s making a Will, funeral planning, retirement income planning or inheritance planning. As I have said before, to be forewarned is to be forearmed. These problems are not going to go away.