How would you fund your long-term care?

Quite understandably, most of us find it hard to contemplate going into a care home in our older age. But a significant number of us will do so at some point.

Care home costs are often high and the support from the government, local authorities and the NHS can be limited for most of us. What’s more, long-term care insurance is not available in the UK.

So careful financial planning is needed to cater for the possibility of going into a care home. This article dives into the following areas:

• The chances and costs of needing long-term care

• How much support is provided by the state and the rules for eligibility

• The options available for paying for long-term care.

Chances and costs of needing long-term care

According to the 2021 UK census, 21 percent of women aged 90 and above were in a care home, while the comparable figure for men was 10 percent. And for 85 to 89 year olds the figures were 9 percent for women and 5 percent for men. But the 2021 data were affected by the tragic impact of Covid on the care home population and the percentages were even higher for the preceding 2011 UK census (1).

The costs involved in paying for long-term care can be substantial. The average cost of a residential care home in the UK is currently estimated at £1,160 a week (or £60,320 a year). Where nursing care is also required, the average cost rises to £1,410 (£73,320 a year) and the costs are even higher for people with dementia (2).

Average life expectancy for female care home residents ranged from 2.9 years at age 90 years and above to 7.0 years between the ages of 65 and 69. And average life expectancy for male care home residents ranged from 2.2 years at age 90 years and above to 6.3 years between the ages of 65 and 69 (3). This means the average male aged 90 and above could need to pay around £133,000 for residential care, while the average female aged 65 to 69 could face a total outlay of around £422,000.

But many people opt to remain in their own homes, aided by carers who undertake some household tasks and duties, such as cooking, cleaning and laundry. If you decide to take this route, the cost of providing care in your home is somewhere between £23 and £34 hour (4). While the amount of help needed varies from person to person, employing a carer for 14 hours a week at £30 an hour would cost £420 a week (around £22,000 a year).

And this could rise over time, as you may need increasing amounts of assistance as you get older. Round the clock, live-in care could cost anything from £900 a week (around £47,000 a year) to £2,000 a week (£104,000 a year), depending on your needs, the services required and the provider you choose.

Whether you’re planning your own long-term care or are helping a relative with an immediate need, here are some of the things you need to consider.

Local authority care assessment

Before deciding how much your care will cost and who will pay for it, you will need an assessment of exactly what kind of help you require. Joint assessments are carried out by social services and the NHS and seek to understand just how independent you are. They will consider factors such as:

• Are you able to physically take care of yourself (washing, dressing, managing your toilet needs, eating, and living safely)?

• Do you suffer from a cognitive impairment, such as dementia or Alzheimer’s, that prevents you from doing these things?

• Do you live alone or with a domestic partner or a relative? If so, what are their needs and capabilities?

Such assessments also allow you to explain what care and support you believe you need to make life easier for you. The Care Act states that your wellbeing and your wishes must be considered in the assessment process.

For example, if you want to stay in your home this must be taken into account. Or, if you can no longer join in activities outside the home, but this is something you want to do, this must be part of the assessment and care plan process.

Following the assessment, your local authority or trust will decide what care services it can provide or arrange for you by comparing your care needs with a set of nationally agreed criteria. It also takes into account how these needs affect your general wellbeing. This will include deciding whether your needs are best catered for in the home environment or in a care home.

Eligibility for financial assistance

Local authority assistance with the cost of social care is means tested. In Wales there is a simple hurdle: if the value of your savings, property and other assets amounts to less than £50,000, the local authority will help fund your care. In England, Scotland and Northern Ireland it is more complex. There is a lower limit below which the council will help fund your care and an upper limit above which you will have to fund your care entirely. And there’s a sliding scale of assistance in between (see chart below).

Eligibility limits for local authority funding

Sources: Gov.uk, ‘Social care - charging for care and support: local authority circular’, 9 February 2024; Care Information Scotland (www.careinfoscotland.scot), ‘Capital limits’, 8 April 2024; Llywodraeth Cymru/Welsh Government (www.gov.wales), ‘Charging for social care’, 18 April 2024; NI Direct (www.nidirect.gov.uk), ‘Paying your residential care or nursing home fees’, 2 August 2024.

So if you live in England or Northern Ireland, and if your assets, including any property, have a total value of less than £14,250, the local authority will have responsibility to help you pay your care fees. But you may have to contribute to some of your care costs depending on any income and/or benefits you receive and we will look at this later in this briefing.

If your personal assets exceed £23,250, you will be expected to pay for your care in full.

Between these two limits you will be expected to contribute £1 a week towards your care for every £250 in assets above the lower limit. If you have assets of £19,250, this is £5,000 more than the lower limit of £14,250. At £1 for every £250, this equates to a contribution of £20 a week.

Similarly, if you live in Scotland and your assets, including any property, have total value of less than £21,500, the local authority will have responsibility to help you pay your care fees. Again, you may have to contribute to some of your care costs depending on any income and/or benefits you receive and we will look at this later in this briefing.

If your personal assets exceed £35,000, you will be expected to pay for your care in full. If you live in Scotland and have assets of £25,000, this is £3,500 more than the equivalent lower limit of £21,500. At £1 for every £250, this equates to a contribution of £14 per week.

What do we mean by assistance?

There is a common misconception that qualifying for help means your local authority will fund your care in full. In fact it will only fund your care up to its budgetary limit, which varies from authority to authority.

So if your current or preferred care home has relatively high fees, then it may not accept the payments offered by the local authority, if these are lower. In this case you may have to move to a cheaper care home or ask your family to pay the difference.

How do you qualify?

When you are means tested your local authority will take into account most of the capital and savings held in your name, including:

• Bank and building society accounts

• National Savings and Premium Bonds

• Shares and other investments

• Income from state, personal and occupational pensions

• Property and land (less the value of any mortgages).

If you hold any of these jointly with your spouse or partner, the value is generally divided by two to calculate your personal share irrespective of how those assets were acquired. Similarly, if your spouse inherits a significant sum of money and this is held in a joint account, half of it will still count towards your assets for means testing.

However, some assets are not taken into account including:

• The value of your life policies/annuities

• Some compensation payments held in trust or by the courts

• Some investment bonds with a life assurance element

• Property that continues to be inhabited by a partner or by a dependant who is above the age of 60 or is incapacitated.

Local authorities may also investigate your financial transactions, sometimes stretching back 20 years or more, to check you haven’t deliberately deprived yourself of capital to qualify for care support. Unacceptable transactions might include transferring a property into the name of a family member, or investing capital in an investment bond, at very short notice. Local authorities take such asset deprivation very seriously and will pursue the recipients for the return of the capital value.

What about your income?

We mentioned above that if you live in England and your net worth is less than £14,250, you may still have to contribute towards the cost of your care. This is because the care home will provide most of your basic needs, such as shelter, food, water, lighting and heating.

Your local authority will therefore assume that you only require a minimum weekly personal allowance for such things as toiletries, haircuts and clothing. Everything above this could be used as a contribution towards your care.

How much you are left with depends on where you live, the current allowances are:

• England: £30.15 (4)

• Scotland: £34.50 (4)

• Wales: £43.90 (5)

• Northern Ireland: £27.19 (6)

Some forms of income are disregarded. These include War Widows’ special payments, the mobility component of the Disability Living Allowance, and (within certain limits) spouse/partner payments from a private or workplace pension.

In calculating your eligibility, local authorities assume you are receiving all the benefits you are entitled to, whether you are claiming them or not. These include the following three benefits.

First, the Attendance Allowance is paid to everyone above state pension age who needs help at home or in a care home because of an illness or disability. It is paid irrespective of how much you earn or have in savings.

Attendance Allowance currently pays out £72.65 a week if you need help either in the day or at night, and £108.55 a week if you need help both day and night (7). But if you have a hospital stay of 28 days or longer, the allowance will be suspended as the NHS is effectively picking up all your care costs.

Even if you are not claiming this benefit, this will be deducted from the local authority’s contribution to your care and you will have to find that money from your personal wealth.

Second, NHS Continuing Care Payments are made if your primary need is classed as a ‘health need’. It covers the costs of personal care and healthcare, such as specialist therapies or for help with bathing and/or dressing. While not part of the means test, these payments can reduce some of your financial burden if you need to pay for a carer to come in and help you wash and dress, for example.

Third, even if you don’t qualify for NHS Continuing Care Payments you may be eligible for NHS Funded Nursing Care. This tax-free, non-means-tested benefit is paid by the NHS. It covers nursing or medical care if you’ve been assessed as needing care from a registered nurse and if you live in a care home registered to provide nursing care.

Reviewing your qualification

These rules mean many people receive no state help with the costs of care. But you can ask for your assets to be reassessed at any time and, should they fall below the upper capital limit, authorities will start to help with funding. If your needs are complex, or your health deteriorates such that you qualify for NHS continuing healthcare, then the NHS will become responsible for paying all your care home fees.

Paying for your care

The first thing to note is care fees increase each year. Between 2021/22 and 2022/23 the rise was substantial, at 19 percent, which significantly outstripped the high inflation of the period (8).

So what are the ways you can pay for your care? You might have sufficient income from your pensions, savings, investments and property to pay for your care in full. If you are unable, or become unable, to fund care home fees from these sources then you could consider the following funding options:

• See if relatives can help with your fees

• Rent out your home to generate additional income

• Make use of an equity release plan, which enables you to access the equity (cash) tied up in your home if you are older

• Homeowners could arrange a deferred payment agreement with their local authority. Under this arrangement you use the value of your home to help pay care home costs. If you qualify, your local council will help to pay your care home bills on your behalf. You can delay repaying them back until you choose to sell your home, or until after your death.

• Buy a long-term care plan via an immediate needs annuity. This is a specialist plan that functions in the same way as a pension annuity. In exchange for a lump sum payment, perhaps from the sale of your home, the plan provider makes regular payments to your care home for as long as you live.

• A couple could move to a cheaper home to release capital if one partner needs to go into care, but the sale proceeds would then become liable for affordability assessments.

• Sell your home.

Conclusion

Long-term care may not be an immediate need, and may not even be something you’ve yet considered. But a significant number of us will require it, the costs involved can be sizeable and long-term care insurance is not available in the UK.

The state can help with some of these costs. But eligibility is limited, the rules can be confusing, and the level of financial assistance is capped due to local authority budgets.

A financial adviser can help ensure you’re well-placed to fund any future long-term care needs and help you make your own decisions while you can. This could mean you wouldn’t burden your loved ones with having to make decisions on your behalf at a difficult time.

There are many options available when it comes to self-funding your long-term care and each has its pros and cons. An adviser can review your financial situation holistically and guide you to an arrangement that’s right for you.

Sources:

(1) Office for National Statistics (www.ons.gov.uk), ‘Older people living in care homes in 2021 and changes since 2011’, 9 October 2023.

(2) carehome.co.uk, ‘Care home fees and costs: How much do you pay?’, 16 April 2024.

(3) Office for National Statistics (www.ons.gov.uk), ‘Life expectancy in care homes, England and Wales: 2021 to 2022’, 16 March 2023.

(4) carehome.co.uk (www.carehome.co.uk), ‘Personal expenses allowance (PEA) in care homes’, 15 April 2024.

(5) LLywodraeth Cymru/Welsh Government (www.gov.wales), ‘Charging for social care’, 2 August 2024.

(6) NI Direct (www.nidirect.gov.uk), ‘Paying your residential care or nursing home fees’, 2 August 2024.

(7) Gov.uk, ‘Attendance Allowance’, 17 April 2024.

(8) Which? (www.which.co.uk), ‘Care home fees soar amid cost of living crisis’, 10 September 2023