How would you fund your long-term care?

• Meeting the cost of care in old age is a growing issue. As life expectancies lengthen, more of us can expect to require some form of long-term care.

• While local authorities and the NHS can support those with low assets and low incomes, the majority of us will have to fund our own care.

• There are a number of routes that can be taken each of which with its pros and cons.

As we reach retirement, our thoughts tend to focus on funding our futures while maintaining our lifestyle.

Few of us stop to consider what would happen if we were unable to live an independent life. Yet this is expected to be a concern for a growing number of us.

The increase in life expectancy has led to a dramatic rise in the number of elderly people requiring assisted living. While the proportion of over-85s living in care homes has remained at around 15% since 2011*, the number of people needing care home places is set to double by 2035 simply down to increased longevity. There is also expected to be an 86% increase in those aged 65 and over requiring care[1].

The costs involved can be daunting. The average cost of residential care in the UK is currently estimated at £33,000 a year but ranges from between £27,000 to more than £40,000. Where nursing care is also required, for example if you are living with Alzheimer’s or dementia, you can add a further £10,000 to £20,000 to that [2].

Our analysis shows that across all age groups the average stay in a care home is between 4.5 and 6 years and at today’s costs that would mean paying between £148,500 and £198,000.

Of course, averages can mask a wide range of experiences from a few weeks to multiples of years.

Increasingly, people are opting 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 currently £19 per hour [3].

While the amount of help needed varies from person to person, employing a carer for 14 hours per week would cost around £14,000 a year.

And this is likely to rise over time not only because of the rise in costs but also because you may need increasing amounts of assistance as you get older. Round the clock care could cost £65,000 a year rising to £83,000 if you have complex needs.

So whether you are planning your own long-term care or are helping a relative with an immediate need, here are some of the things you need to think about.

Will the state help you?

The subject of state funding for long-term care received considerable attention in 2014 when the Care Act proposed a cap of £72,000 on the amount private individuals would have to pay for their own care from 2020. However, this would only cover the cost of providing care, not the cost of staying in the home.

Beyond that limit, all care costs would be picked up by local authorities and/or the NHS.

However, this commitment was dropped in December 2017 because it would have required social workers to carry out many thousands more assessments and reviews each year to firstly determine whether each individual still had eligible needs for care, and then track the cost of meeting those needs until the cap was reached. 

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 need.

Joint assessments are carried out by social services and the NHS and seek to understand just how independent you are.

• 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 – like dementia or Alzheimer’s – that prevents you from doing these things?

• Do you live alone or with a domestic partner or a relative?

• What are their needs and capabilities?

It also allows 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 considered.

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 but also taking into account how these needs affect your general wellbeing.

This will include deciding whether your needs are best catered for within the home environment or within a care home.

Eligibility for financial assistance

Local authority assistance with the cost of social care is means tested, with upper and lower bands determined by the value of your savings, property and other assets.

• Different limits apply in England, Scotland, Wales and Northern Ireland.

• In Wales there is a simple hurdle: if your assets amount to less than £50,000 the local authority will help fund your care.

But in England, Scotland and Northern Ireland it is a little more complicated. There is a lower limit below which the council will help fund your care; an upper limit above which you will have to fund your care entirely; and a sliding scale of assistance in between.

 These are illustrated in chart 1, below.

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.

However, 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 £18,000, this is £3,750 more than the lower limit of £14,250. At £1 for every £250, this equates to a contribution of £15 a week.

• If you live in Scotland and have assets of £18,000, this is £1,500 more than the equivalent lower limit of £16,500. At £1 for every £250, this equates to a contribution of £6 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. However, it will only fund your care up to its budgetary limit, which varies from authority to authority.

• If your current or preferred care home has higher fees, and won’t accept the lower payments offered by the local authority, you will either 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;

• Stocks, shares and investment products;

• 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.

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

• A dependant who is over the age of 60 or who is incapacitated.

Local authorities may also want to investigate your financial transactions – sometimes stretching back to twenty years or more – to check that you haven’t deliberately deprived yourself of capital to qualify for care support. For example, by transferring a property into the name of a family member, or investing capital in an investment bond at very short notice.

Local authorities take asset deprivation very seriously and will pursue the recipients for the return of the capital value.

What about your income?

We mentioned above that even if your net worth is less than £14,500, you may have to contribute towards the cost of your care. 

This is because the care home will provide most of your basic needs: shelter, food, water, lighting and heating for example.

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 [4] are:

• England: £24.90

• Scotland: £27.75

• Wales: £29.50

• Northern Ireland: £25.27

Some forms of income are disregarded including War Widows’ special payments, the mobility component of the Disability Living Allowance and – within certain limits – spouse/partner payments from a private or occupational pension. 

It is also worth noting that in calculating your eligibility, local authorities assume you are receiving all the benefits you are entitled to, whether you are claiming them or not.

There are three benefits of particular note. 

The Attendance Allowance is paid to everyone over 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 [5].

• It currently pays out £57.30 a week if you need help either in the day or at night, and £85.60 a week if you need help both day and night.

• 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, it will be deducted from the local authority’s contribution to your care and you will have to find that money from your personal wealth. 

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.

Whilst not part of the means test, these payments can alleviate some of your financial burden if you need to pay for a carer to come in and help you wash and dress, for example.

Even if you don’t qualify for NHS continuing care payments you may be eligible for NHS Funded Nursing Care, a tax-free, non-means-tested benefit. It is paid by the NHS to cover your nursing or medical care if you have been assessed as needing care from a registered nurse, and if you live in a care home that’s registered to provide nursing care.

Reviewing your qualification

These rules are stringent and mean that many people receive no state help with the costs of care. However, you can ask for your assets to be reassessed at any time and once they fall below the upper capital limit, authorities will start to help with funding.

Finally, if your needs are complex or your health deteriorates to the extent that you qualify for NHS continuing healthcare, the NHS will become responsible for paying all your care home fees. Paying for your care

So what are the ways you can pay for your care? If you are lucky, then you might have sufficient income from your pensions, savings, and investments to pay for your care in full.

Savings and deposits

As we age there is a natural inclination to move our investments into lower-risk rated saving accounts. However, you might be reliant on the income from them to pay the fees in full. Although they are very low risk, they pay a lower return and if the income does not meet the fees in full, you may have to dip into the capital to top up the payments. 

• This could lead to the income generated decreasing over time, and your ability to meet your care fees from your savings will diminish.

 You also have to consider that care fees increase year on year. Whilst this has historically been in the region of 5% per annum, increases in the minimum wage and pensions contributions saw fees rise by 9.5% in the tax year 2016-17 [6]. 

Investing for income

Rather than rely on savings and deposit accounts, you could consider investing in company shares. But while these have the potential to increase your capital value over the longer term, dividend payments from companies are not guaranteed.

• You also need to consider that share prices change frequently and if a decline in value occurs just as you need to withdraw money, it could be difficult for you to rebuild your capital to meet future payments.

Alternatively, your relatives may be able to help with your fees. 

Optimising your property assets

But you can also make use of your other assets. If you live alone and are moving into care, you might decide to rent out your home to generate additional income.

• However, the rent received will have to be declared and taxed as income.

You could make use of an equity release plan or even sell your home to pay for your care.

As a couple you might decide to downsize to release capital if one of you needs to go into care.

Buying a long-term payment plan

Many of the options explored above share the risk that your money could run out.

Although your local authority will step in at some point, they are only bound to offer the minimum level of care, and you may have to face moving to a cheaper care home when you are at your most vulnerable.

Another option could be an immediate needs annuity. This is a specialist insurance plan which functions in the same way as a pension annuity. In exchange for a lump-sum payment – which could be funded from your savings, investments and/or a home sale – the plan provider makes regular payments to your care home for as long as you live.

And paying the fees direct to the care home makes them tax free. If you have to move care homes the plan moves with you.

There are fixed payment plans and there are plans with built in annual increases. This is usually 5%, but you can opt for larger increases. Whether you opt for a payment increase and how much you opt for will affect the amount you have to pay up front.

If your health deteriorates to the extent that you qualify for NHS continuing healthcare the payments from the annuity will continue to be paid, but then switch to a personal income plan and become taxable.

• Committing a lump-sum upfront can protect the remainder of your assets. 

• While there is no risk that the payments will ever cease, fees could still increase at a faster rate than you had anticipated, and you may need to top the payments up.

• If you die earlier than expected, some or all of the money you put up to fund the scheme could be lost from your estate.

Conclusion

Long-term care may not be an immediate need, and may not even be something you’ve considered before now. But increasing life expectancies mean more of us are likely to require it.

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

There are many options available to self-funding your long-term care and each has its pros and cons, but advance planning can help ensure you are better placed to financially support any future needs. Just as pension planning can help provide a securer retirement.

Most importantly it gives you the ability to make decisions for yourself while you can without burdening your loved ones with having to make them for you at a stressful and emotional time.

You can use assets that you have built up to pay for your care; for example from income, from cash savings or investments, even from your home.

With the right structure in place these can all be used to provide a tax-efficient income stream at the point that you require care.

Deciding on the right approach for your situation requires a professional analysis of your personal life expectancy and an assessment of your potential future health needs.

Most importantly, having a comprehensive and appropriate lifetime financial plan in place can help support both you and your family. If you would like to discuss the long-term care issues that you and your family might face, ask your Personal Wealth Adviser for a referral to one of our dedicated long-term care specialists.

[1] Grant Thornton, Care homes for the elderly where are we now? 2018

[2] Laing Buisson, Care Homes for Older People, 2018

[3] UK Homecare Association minimum price for homecare, April 2019

[4] Department for Health and Social Care, April 2019

[5] www.nhs.uk as at 28 June 2019

[6] Alzheimers.org