How to fund future care costs

05th Aug 2015

Long Term Care

The postponement of the implementation of the two main provisions of the Care Act 2014, relating to the funding of long term care costs, is likely to have significant financial implications. The first change introduces a cap of £72,000 on personal liability for outlay on eligible care needs, whilst the second increases the upper eligibility limit, on capital and savings, from £23,250 to £118,000. These provisions were initially to be implemented in April 2016 but this has now been deferred until April 2020.

For anyone who is facing the prospect of paying for care and is affected by this deferral it will now be necessary to consider alternative sources of funding. Even for those who will not be immediately affected by the delay, there may still be the need to look at how they can protect their financial position from the impact of substantial future care costs. Fortunately, there are various potential alternative strategies to cover the cost of paying for care.

Tax Free Isa

Saving in a Tax Free Isa over a period of years is an easy way to build up a savings pot which will be exempt from Capital Gains Tax and Income Tax and could be used towards paying for care.

Increased Pension Contributions

Pension premiums are paid net of income tax and an increase in the premiums paid will exploit that. It will also increase the size of the tax free lump sum that can be realised once the pension matures. This is presently 25% of the pension fund, which could represent a valuable contribution towards care costs.

Equity Release Schemes

Releasing some of the equity in a property through an equity release scheme can enable a person to remain in their home and provide cash for alterations and/or for a domestic carer. The home will also be excluded from the means test. Alternatively, releasing some of the equity in the home will provide a useful fund to pay towards the personal contribution to the cost of care.

Whole of Life Insurance

Whole of life insurance is more expensive than term insurance but there are now some insurance providers who are offering whole life policies that are tailored to meet care costs by providing an accelerated payment if the policy holder’s health deteriorates as they grow older.

Annuities

There are also several providers that are now considering annuities which are designed to pay out a lesser amount of income initially and an increased sum later in order to assist the annuity holder with paying for care. Whilst this type of annuity is still under consideration, short-term, immediate care annuities are available already. Whilst expensive, this type of annuity can produce significant income for a relatively short period and it is a popular product for helping to pay for care costs.

Whether you are looking to minimise the impact of the delay in implementing the Care Act 2014 or are more generally concerned about the impact of care costs beyond 2020, there are opportunities, such as those set out above, to reduce the impact of paying for care in your later life.