The cost of care in the UK can be a surprise to many people. In England, for instance, the average weekly cost of residential care is £621, whilst in Scotland it is £674. With these sorts of weekly figures, it is not unusual for annual care costs to reach £27,000-£39,000.
Given that many people could end up spending several years of their lives in some form of care, it is not surprising that many people are concerned about whether they will be able to afford the costs involved. Many families also understandably worry about the possibility of inheritance getting wiped out by care fees.
At WMM, as financial advisers, we want to help people as much as possible to prepare financially for the potential costs of care, and to leave open the best chance for you to leave a meaningful inheritance to your loved ones.
In this short guide, we’ll be sharing some practical tips about how to incorporate long-term care into your financial plan. Please note that this content is for information purposes only, and should not be taken as financial advice. To receive regulated, bespoke advice into your own affairs and goals, please consult an independent financial adviser in Oxford or elsewhere.
Know Your Entitlements
Many people are surprised to learn that the government will not necessarily cover the costs of your potential future care needs. Your eligibility for social care funding from the state is determined by a means test known as the Care Needs Assessment, which is usually carried out by your local authority.
As a general rule in 2019-20, if your savings, income, pensions, investments and assets surpass £23,250 then you will likely need to cover your own care costs. If you fall under this threshold then you might qualify for financial support from your local council, but you might still be required to make contributions towards covering the cost of your care.
Quite often, the value of your home will be taken into account when the council tries to work out your total capital (in order to determine whether you are eligible for financial support). However, there are certain situations where your home might be excluded from the valuation. For instance, this might happen if you only need temporary/short-term care, or if your partner or spouse still occupies your home as a place to live.
Financial Planning for the Cost of Care
At this point, it might be tempting to think that the best way to plan for long term care is to reduce your savings and income to under £23,250! Yet, of course, that would not be sensible for most people and, arguably, would be an abdication of responsibility.
Fortunately, there are a range of options open for consideration when it comes to providing a personal safety net for your potential, future care costs. Each of the below should be discussed carefully with your financial adviser, to determine their suitability within your own financial plan:
Some people are in the fortunate position of having sufficient income and savings to potentially pay for years of care costs. Perhaps you own a set of rental properties which could potentially cover any fees, for instance. In these circumstances, however, it is still a good idea to seek professional financial advice to ensure that your bases are as fully covered as possible. For example, could you still meet your potential care costs in your rental property income suddenly dropped?
It is possible to find insurance policies which will pay you a guaranteed lifetime income (i.e. an “annuity”), in exchange for a lump sum payment. Moreover, you can often arrange for the policy income to be directed specifically to the care home, in which case it might be possible to reduce or eliminate tax on the income. The primary benefit of this approach is that it provides a high degree of financial security to help cover care costs well into the future. On the downside, you need to consider the risk that you might die after only a few months or years in care. In which case, the amount you spent on the policy might not see a return.
Sometimes your family might be able to help cover the costs of your possible future care. If this is a possibility, then you are very fortunate. Regardless, it would be a good idea to consider financial advice to ensure that you have provisions in place if things don’t go to plan. Sometimes events can transpire which reduce or eliminate the financial support you expect from your family, and it’s a good idea to have contingency plans in place in the unfortunate scenario this transpires.
Another potential source of funding to cover your possible care costs could be your investments. A strong, sizeable investment portfolio comprising various assets (e.g. shares and bonds) might have the capacity to supply some, or all, of the income you might need. However, you will need to talk with your financial adviser about whether it will be realistic to build up such a portfolio, given your distinct circumstances. Even so, you should also consider how to protect yourself in the unfortunate event that your investments fall in value, thereby reducing your income to cover your care costs.
In certain situations, your home or property assets might be a possible source of capital to help cover your care costs. For instance, equity release could be a way to release funds for care whilst retaining your home. Alternatively, it might be best to sell your home and use the proceeds to fund an annuity or commit towards investments which produce returns which help to cover your care costs. These tend to be more “last resort” options, however, so it is best to consult your financial adviser before committing to any significant decisions about your home in relation to funding long term care.