The long-term care sector in the UK is a vital component of the nation's healthcare system, and as the population ages, the demand for long-term care continues to rise. This makes it crucial for individuals and families to understand the costs involved and the various funding options available. In this brief article, we will explain the likely costs of care before exploring options for funding care, and the benefits of planning early.
Long-term care in the UK can be provided in various settings, including residential care homes, nursing homes, and home-based care. The costs associated with these services can vary significantly depending on the type of care required and the location. The key difference between residential and nursing care is that residential care homes primarily offer accommodation and personal care assistance, whereas nursing homes provide a higher level of care, including medical care provided by qualified nurses. On average, the weekly cost of residential care is around £1,266, while nursing home care costs approximately £1,528 per week [1]. This translates to annual costs of £65,832 for residential care and £79,508 for nursing care. These figures are UK averages, but they differ by regions, with London and the South-East having higher than average costs. This highlights the substantial financial burden that long-term care can impose on families.
Given the high costs of long-term care, it is essential to explore various funding options that may be available to you to alleviate the financial strain.
The Local Authority will conduct a care needs assessment and a financial assessment to determine the level of assistance required, and the eligibility for funding.
At the time of writing, if you are in England and have total savings and assets of more than £23,250, you will have to pay for all your care fees. If you have savings and assets of between £23,250 and £14,250, you may be eligible for some support but will still need to pay for some of your care fees, and if you have savings and assets of under £14,250, you will be eligible for local authority funding.
You will also be asked about your regular income. Certain types of benefits will be excluded from this assessment, but all other income sources (including pension income) could be taken into account.
If you already need care, you cannot simply dispose of all assets, as this will be seen as 'deliberate deprivation of assets', and their value will be taken into account. If you will continue to live in your home, or your partner, or a relative over the age of 60 lives in a house that you own, the test will not include the value of your residence.
For those with long-term, severe and complex health needs, known as a 'primary health need', the NHS provides funding through NHS Continuing Healthcare. If you qualify, this program covers the full cost of care for eligible individuals, ensuring that their care home placement is free, and is not means tested.
Whilst this is not direct funding, some local authorities offer deferred payment agreements, allowing individuals to defer the costs of care until their property is sold, offering temporary relief.
The threshold at which you will need to fully self-fund care costs are low, and therefore many individuals will have to find the money to pay these fees. Many individuals use their savings, pensions, or investments to cover the costs of long-term care, which requires careful financial planning to ensure that funds are sufficient to meet ongoing care needs. In this section, we explore a few of these options and note some points to consider.
These operate similarly to normal annuities in that you pay a lump sum to the annuity provider, but instead of them then paying a guaranteed taxable income directly to you, they will instead pay the income directly to the care provider to cover the fees, with no deduction for income tax when paid directly to the care provider.
An immediate needs annuity is for individuals who require care, whereas a Deferred Care Annuity is tailored for those reviewing their care funding position ahead of time.
Pre-funded care plans are no longer sold by insurers, but some people may have existing care insurance plans that will pay out when the policyholder becomes unable to look after themselves.
Cash savings are often the most liquid asset to draw on and can avoid complex financial arrangements. You must be careful that this does not impact on your financial security by depleting emergency funds. In addition, by using cash savings, you might miss out on potential investment returns that could be earned if the monies were invested. There are cash management solutions available which you could make use of, as well as any National Savings & Investments holdings that you may have, such as premium bonds.
Using investments can be a bit more complicated. If the investments are within an ISA wrapper, there are no tax consequences to withdraw monies, apart from maybe a dealing fee to sell the investments. For taxable investments, capital gains tax may be applicable on fund sales, and this should be considered when planning withdrawals. It is important to ensure investments are diversified and that you are invested at the right risk level.
Pensions are a core place that people draw monies from to fund care fees. You can make use of the 25% tax-free cash allowance (if you haven't already) to receive a tax-free lump sum to help with care costs. You can also draw a taxable income either through drawdown, or by purchasing an annuity, which can go towards the cost of care.
If you own you own home and are over the age of 55, you may be able to release equity from the home, converting it into cash.
The most popular type of equity release is a lifetime mortgage, which involves you borrowing an additional lump sum in the form of a mortgage, which is repaid when your property is sold in the future. The other option is a home reversion scheme, where you sell all or a part of your property to an investment company, but you retain a legal right to live in the property until you either die or move into long-term care.
Whilst these sound great options, it is important to note that these options do not pay you the full market value for your home, meaning you could receive far less money than if you went to open market. It will also reduce the amount of inheritance you can pass on, but it gives you the money to spend in the short-term, which you may need for the care fees.
It is important to ensure you have a Lasting Power of Attorney (LPA) in place before care is needed. If you lose mental capacity, which is an extremely common reason for needing care, the LPA will allow nominated individuals to make decisions on health and financial affairs on your behalf. This can be vitally important if someone needs to self-fund care but does not have mental capacity to make those financial decisions about how to fund the care fees. If someone loses mental capacity without an LPA in place, the Court of Protection will appoint somebody to act as the 'deputy'.
Navigating the complexities of long-term care funding can be challenging, but understanding the available options can help individuals and families make informed decisions. By planning ahead and exploring the self-funding options, individuals can ensure that they receive the care they need without themselves or their family facing overwhelming financial burdens.
If you would like to discuss your circumstances relating to planning for later life, please contact us for a free initial consultation to see how we can help and support you.
How investments have performed in the past is no guarantee to how they will perform in the future. The value of investments may go down as well as up and you may not get back the amount you invested.
Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.
