Preparing for the cost of care
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Smith & Pinching in Norwich, Lowestoft and Eaton. The Financial Conduct Authority does not regulate taxation advice, estate planning or inheritance tax planning.
In 2023, the average cost of care in the UK stands at £760 per week. The cost for a care home is even higher at £960, with certain areas (e.g. London) imposing even greater prices on residents. This means that monthly costs for care can reach £3,000 – £4,000, with annual costs possibly reaching £50,000 or more depending on the area, the type of care and its quality.
Given these potentially high costs, how can individuals realistically prepare for the cost of care in their financial plans? Below, our Norwich-based financial planners offer a short guide to help clients navigate this important subject. If you want to discuss your care strategy with us, please get in touch to arrange a meeting with a financial adviser.
01603 789966
[email protected]
Understand the system
Some people mistakenly believe that social care in the UK operates similarly to healthcare provision. Unfortunately, care is not necessarily free at the point of use from the NHS. Rather, local authority funding is available to certain individuals who have passed a means test. Others will need to fund their own care.
In 2023-24, you must pay your full care fees if your capital exceeds £23,250. If your capital is between £14,250 and £23,250, then you will need to contribute from your income. Less than £14,250, you are no longer required to pay a “tariff income” based on your capital; yet income included in your means test must continue to be paid.
Your capital status is determined by your local authority which carries out a care needs assessment when you apply for financial support. Please note that the value of your home is not included in the means test if you (or certain people) live there. However, if you move permanently into a care home, then the value of your home might be included in the means test.
You cannot give away or sell assets to try and get your capital under £23,250 or £14,250. Authorities are likely to deem such action as a “deliberate deprivation of assets” and could still include their value in a care needs assessment.
In October 2023, a new “cap” on social care fees was due to come into effect. In theory, this means that someone living in England will never pay more than £86,000 on care over their lifetime. However, this has now been pushed back to 2025 and the policy could change between now and then, with a general election due by that time. Even if implemented, the cap may not include other “non-fee” care costs such as food and utilities.
Options for funding care
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Hopefully, you will not need to enter care. However, none of us knows the future. It would be better to have a contingency plan in place, ready to pay for your care costs. If this is not needed, you possibly have more assets or income to enjoy in later life – or, to pass down to loved ones.
One option is to start early with a dedicated investment plan. This portfolio can be specifically set aside to help pay for care later. The sooner this portfolio starts, the more time it has to accumulate due to the power of compound interest. Different “vehicles” could be used to ensure maximum growth and tax efficiency, such as ISA or pensions. At this end of your life, any remaining funds could then be inherited by your beneficiaries.
If you are worried that you may need to sell your home to pay for care, then bear in mind that you will not need to do this if you receive professional care in your own home. If you do need to move into dedicated care (e.g. in a residential property), then the value of your home is not counted if a dependent – such as an elderly spouse or frail relative – continues living there.
Even if you qualify for local funding, please note that this may not be enough to completely cover your care costs. It is plausible that you will need to at least “top up” any government contributions. Here, it can help to speak with a financial adviser about integrating your retirement plan into your care plan. For instance, perhaps certain pension income – e.g. State Pension and/or income from flexi-access drawdown – could be diverted towards helping to pay for your care.
One idea is to consider an “immediate needs annuity” to cover part or all of your care costs. This is a type of financial product, sold by an insurance company, which provides a steady income over a defined period. The cost of the product and its income amount depends on many factors such as your age, your health, interest rates and whether you want a “level” or “rising” income. The income from the annuity will be tax-free if paid directly to your care provider.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a meeting with a financial adviser.
01603 789966
[email protected]
