The funding of long-term care is becoming a major political issue, but for many families it is already a burning personal issue. It is estimated that more than 20,000 a year are forced to sell their homes to pay for care (Source: www.adviceoncare.co.uk – January 2013) and that number could be on the increase given rising care costs.
Some people do get state help. Depending on your income you may get state help, although a person who owns his or her home is likely to fail the local authority means test and be deemed a “self-funder”. In England, this threshold is £23,250 (in Wales it is £24,000 and Northern Ireland it is £23,250 and in Scotland £26,000) (Source: CRAG Guidelines 2014)
In most cases this includes the value of any property owned. However, there are circumstances in which the family home is ignored: if you have a spouse or relative aged 60 or over still living in the home it will not be included within the local authority’s financial assessment. It should also be ignored if your care needs are classed as “temporary”.
In addition, if your other assets, excluding the home, are less than £23,250 (£26,000 for Scotland), then you should not be charged for the first 12 weeks. Those in this situation can request that a legal charge is put on their home rather than selling it upfront.
You need to be aware that not all benefits are means-tested. For example, people who need nursing care (as opposed to “personal care”) will receive a contribution towards these costs, regardless of their financial position. In England this is normally paid at ££110.89 a week, with payments made direct to the nursing home. It is important to remember, however, that reliance on the state comes at the cost of choice of the care you receive.
For many people the self-funding route is going to be their only option. It is a worrying prospect as the cost of care can quickly add-up and eat into your savings.
On average, someone who requires care in a residential care home will pay £531 per week, and for a nursing care home £731 per week (weighted averages for the whole of the UK, source Laing & Buisson Care of Elderly People UK Market Survey 2012/13), a huge ongoing amount to find at any age, let alone in later years. However, these are averages across local authority funded and self funded care, many self funders will pay much more than these averages.
It doesn’t take much to work out that you wouldn’t have to be in a care home for too long before you or your family had spent hundreds of thousands of pounds on paying fees.
In the past, pre-funded care insurance plans were an option – aimed at those who think they might need to go into care in the future. But as it stands not one UK insurer provides pre-funded insurance today with the last provider exiting the market in 2010, citing lack of demand.
Instead, perhaps the most popular option for paying for long-term care is an immediate care annuity, which pays a tax free fixed income for life, provided that it is paid directly to the care home provider.
This can provide some certainty for people moving into care, as they know their fees will be guaranteed to be paid for life; their money will not run out and they will not have to move into a local authority-run home later. There is also the reassurance that whatever is left from the sale of the home, once the annuity has been bought, can be left to the next generation.
The price depends on a person’s age and health when going into care – the longer the insurer expects them to live, the larger the upfront cost. Most providers, however, allow you to buy “capital protection”, which refunds part of the cost in such circumstances. You can also pay into plans that protect against inflation via escalating benefits.
Many people fund this annuity when they sell their home. Of course, the downside is that if the person dies shortly after going into nursing care then you will have paid out more for the annuity than the cost of fees. It can seem a little bit of a gamble, but an annuity does provide security in that you know fees are covered for life.
You could try to fund care fees out of regular income – if you have the means to do so. For starters, if you are going into care and have no dependants, then your own property could be rented out and the rent used to offset the fees.
Alternatively, with careful planning you could build an investment portfolio designed to pay an income without taking undue risk. You will need expert help because it is crucial that your capital is protected to a large degree. Again, just be aware that several years’ fees could quickly add up, so the balance and diversification of assets will have to be just right.
We are all expected to live longer but while that is good news it is likely to mean that more people will need to consider care fees – not just for themselves, but also for their parents. It is an issue that many baby boomers are dealing with at this very moment – and it is an issue that is unlikely to disappear.
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