Care now – and get better care later
If you end up needing long-term care, the chances are you will have to fund most or even all of it yourself. When the costs can potentially spiral and eat into any inheritance you plan to leave behind, planning in advance is essential. What are your options? Article by Armstrong Watson Financial Planning.
According to research by Friends Life, an estimated 1 in 4 people will require care later in life. However, both the level of care provided and the cost of providing it may vary greatly, and can even be dependent upon where you live.
The 2015 Care Act was made to support care in England (it does not cover Scotland, Wales or Northern Ireland), but certain elements of the legislation have yet to be implemented and have been put back to 2020. This includes the flagship policy to cap care costs at £72,000 for the over-65s (and younger adults with disabilities). The consequence of this is that anyone with assets over £23,250 (usually excluding their home) must pay all their own care costs.
For one in 10 people care costs can total more than £100,000 – not including other living costs such as food, bills and accommodation. As a result, the need to fund long-term care can seriously eat into your savings and also impact upon other areas for you and your family, such as the use of your home and any inheritance that you plan to leave behind.
It is therefore prudent to consider how you might cover such costs well in advance of having to do so – because when the time comes you may not have many alternatives.
So how could you pay for long-term care?
- Use income
You may have sufficient income from your private and state pensions to be able to pay for the care that you require, but you should take into account the fact that costs are likely to rise over time – and that they may well rise faster than the income you receive.
- Create an income from investments
You may have an investment portfolio that can generate sufficient returns to pay for your care costs. Bear in mind that not all investment income can be withdrawn tax-free, so you need to take the tax implications into account. Also consider the level of risk involved, as investments (and the income from them) can fall as well as rise. Furthermore, you probably won’t want to be managing investments yourself while receiving long-term care.
- Equity release
As a home owner it’s possible to extract some of the value of your property, either as a lump sum or as regular payments. Drawbacks may include possible difficulties down-sizing in the future (as the lender will hold a legal charge over the property), plus the accumulation of the interest charged. This can substantially reduce or even wipe out the net value you can pass on to your family. There are almost always fees to pay too.
- Rent out your home
As an alternative to releasing cash from the property, you could move out and rent your home in order to receive a regular income. It’s important to be aware that the income produced is not only taxable, but also dependent upon you being able to keep the property occupied all year round (100 per cent occupancy can be very hard to achieve). The rental income would also need to keep pace with any rise in the cost of your care.
- Draw down on capital
Similar to using investments, you could simply withdraw capital and pay for ongoing care costs from wealth that you have accumulated. Again, tax can be an issue here, so care is required.
- Immediate care plan
Similar to a retirement annuity, this type of product pays a guaranteed regular income for the remainder of your life, based upon your age, health and choice of care. These arrangements are medically underwritten, but also have the ability to keep pace with increasing care costs by including an automatic increase option.
It’s worth repeating that most people who need long-term care will need to fund some or all of it themselves. Although some state benefits do exist in this area, you should not expect any or rely upon them unless you know you are eligible. Remember too that you cannot ‘make yourself eligible’ by disposing of assets to reduce your wealth before going into care – this is called ‘deliberate deprivation’ and local authorities will be looking out for it.
If you have concerns over funding for your own care, or that of another family member, then the most sensible first step is to seek professional advice. Long-term care is a highly specialised area, so search for financial adviser with the appropriate qualifications and experience using the Unbiased search.
Armstrong Watson Financial Planning Limited is the independent financial advisory division of Armstrong Watson, with offices across the North of England and South Scotland. The firm has extensive long-term care experience, and over 30 years’ experience of helping to develop business and personal financial strategies for a wide range of clients.