An estimated £11bn per annum is spent by people funding their own care in the UK. However, less than 7% of individuals who fund their own care get advice on their options.
Who is responsible for paying for care?
The rules and thresholds for paying for care differ in each of the countries within the United Kingdom. We will focus on the current regime that applies to England.
There are 2 categories of care:
- Social care – this covers help with things like preparing meals, getting dressed, washing etc; and
- Nursing care – this is more specialist care for the treatment of a medical condition.
The rules for funding are different for each type of care. For social care, anyone who owns assessable capital worth more than £23,250 will be responsible for meeting the full cost of their care. It is important to note that husbands, wives and civil partners are not responsible for funding each other’s care, and how a couple arrange the ownership of their assets can have a significant effect. It is also important to note that some assets, notably a home in certain circumstances, are not assessable capital and are, therefore, not taken into account.
Anyone with assessable capital of less than this limit, will be expected to use all of their assessable income towards the cost of their care except for a weekly allowance, currently £24.90. It is again important to note that some incomes are exempt from assessment and the weekly allowance can be increased in certain circumstances. The local authority will contribute towards any shortfall, but a local authority contribution will probably be capped at a certain amount. If you choose a more expensive care home than the local authority is prepared to fund, you would generally be expected to pay the difference.
Nursing care is provided by the NHS and is free at the point of need. If you qualify with a Primary Health Need the NHS may become fully responsible for meeting the full cost of your care. If you have some element of health need and you receive care in a registered Nursing Home (as opposed to a Residential Care Home) you should become eligible for an NHS Nursing Care Contribution, the current rate for new claims is fixed at £183.92 per week.
What support is available towards the cost of care?
The rules around funding care are complex and there are a number of grey areas. However, most people, aged over 65, who develop a need for care or support should be entitled to claim Attendance Allowance. This is a state benefit which is paid at £59.70 per week (if you require day time support only) or £89.15 (if you require support at night too).
What are my options for funding my care?
There are 6 ways to pay for care; 3 specifically based around a property and 3 more general ways:
- Let out the property – If there is no one living in your home, it could be let to produce a rental income that could be used to meet your income shortfall. Be aware that your property may require some capital investment to bring it up to standard to comply with landlord responsibilities. It is also the rental income left after tax, agent’s costs, maintenance and other expenses that is available to be used towards the shortfall and many people find that this is not enough;
- Deferred Payment Arrangement – This is the option for the local authority to fund the shortfall, which is then cleared on death. The local authority will take a charge on the property as security and they charge some administration costs and interest on the balance. This is not available in all circumstances;
- Equity Release – This is the option to release some of the value stored in the property through a lifetime loan. However, the participants to the loan must be living in the property. It is generally of more use to those people who are receiving care at home or couples where one party moves to a residential home and the other remains in the property. The equity release company will charge set up costs and an interest rate on the balance of the loan. The home can often be an asset that is exempt from local authority assessment in a number of scenarios and taking out equity release can significantly increase the amount that an individual contributes to the cost of their care. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration;
- Cash – This is the simplest of all of the options. Money is held in a bank account and the shortfall is taken from cash savings. However, with interest rates at very low levels and care fees increasing at near twice the rate of headline inflation, there is an increased risk of running out of money. For larger sums of money, the Financial Services Compensation Scheme limits of £85,000 can also be a concern and involves having to run accounts with multiple banks;
- Investments – Investing sums of money to try and generate an income to meet the shortfall or higher levels of growth so that money will last longer is an option. A properly managed portfolio can provide higher levels of growth than cash in a bank, but the return is more variable and there is a risk of losing capital as well, particularly as the capital is likely to be needed within a relatively short period of time. The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest; and
- Care Fees Plan – A Care Fees Plan is an insurance product offered to provide an income for the rest of a person’s life in exchange for an initial capital sum. This means that the annuity company takes on the risk that you might outlive your capital. For many people, this provides peace of mind that they will be able to afford their fees no matter how long they live. There does however remain the risk that you might pass away before you have received back the initial investment.
For many people, the right answer is a combination of the above options to provide certainty and flexibility.
Within each of the above broad categories, there are a variety of different options. For most people, this will be something that they will look at once or twice in their lives, but the implications can be considerable, which is why specialist advice from an accredited adviser is so important.
WBW Chartered Financial Planners are specialists in advising on funding for care with 3 of our advisers holding the Later Life Adviser Accreditation from the Society of Later Life Advisers (SOLLA). We can help you make sense of the complex issues involved and we will act with sensitivity and understanding, and we are very pleased to offer any prospective client a free initial consultation in the first instance.
Funding care requires more than just financial advice and we work closely with our legal colleagues to provide a single point of contact for all your requirements.
Our guide The Basics of Care Fees Planning provides more detail on what we have covered in this article. To request a copy, please contact us on email@example.com.
Should you wish to speak to one of our experts regarding your circumstances or those of a friend or relative, please contact us on firstname.lastname@example.org or 01626 202404.
This article is not intended to provide personalised advice. You should seek advice in respect of your personal circumstances.