What you need to know about planning long-term care fees
First published 17 March 2014 • Updated 13 March 2018
There is no doubt funding the cost of long-term care is becoming an increasingly important consideration for many families across the UK. Here’s what you should know.
We have an aging population in Britain and improved life expectancy suggests time spent during later life in residential care is a growing likelihood. Compared to 40 years ago, men and women are both living an average of seven years longer. We are living longer lives but these are unfortunately not always healthier lives.
“One in ten people will spend over £100,000 on care fees during their lifetimes. An average person who funds their own care will be resident in a home for around four years”
As a result, one in five people over the age of 70 now receive care in the home and there are over 430,000 elderly and disabled people currently living in residential care. With the elderly population expected to increase by more than 40 per cent over the next 50 years, planning for the cost of care is fast becoming an essential part of Financial Planning.
It is fair to say that care is very expensive. Just recently we saw the opening of what claims to be the most luxurious care home in Britain. Linden House in Hampshire cost £8.5m to build and their fees start at £980 a week for residential care. With five-star hotel style en-suite bedrooms, a cinema, hair salon and town square featuring beach huts, you might think this to be good value.
But even more typical care homes cost a lot of money. The average cost of residential care in the South East is now £28,367 a year. It is higher in the South East, at £32,048 a year. These are fees which are rapidly increasing; price inflation as measured by the Consumer Prices Index (CPI) recently fell below 2 per cent for the first time in years, but care fees inflation stands at 9.3 per cent for the past two years.
One in ten people will spend over £100,000 on care fees during their lifetimes. An average person who funds their own care will be resident in a home for around four years, but one in eight stay for at least eight years. With such high average costs for residential care, it is easy to see how the total cost quickly stacks up.
If you have little in the way of eligible assets, you local authority will help fund your care through a needs and means tested process. If this happens, don’t expect to end up in Linden House or anything comparable, but instead in a home that your Local Authority decides represents reasonable value for money.
Property wealth means many people will have eligible assets exceeding the £23,250 threshold, and will therefore have to fully fund their own care fees. State support is still available for this group of people, in the form of Attendance Allowance for many and Registered Nursing Care Contribution for some. Getting the NHS to cover the cost of care outside of a hospital is only available to those with a primary health need and, in our experience, is becoming increasingly challenging to obtain.
On the positive side of the coin, we often find our clients are happy to spend some of the wealth accumulated from a lifetime of hard work to ensure choice, dignity and quality of care in later life. Good financial planning means it is possible to plan for care without fully depleting assets and effectively ring-fence an inheritance for future generations. By drawing on cash savings, investing money for income or purchasing an immediate care annuity, it is possible to tailor a care funding strategy to suit individual needs.
There might be some relief from the very high lifetime cost of long-term care following recent government proposals to reform the system, although early indications suggest any lifetime cap (designed to limit the total anyone will pay for care in their lifetime to £72,000, when introduced) will not benefit nine out of ten elderly people. This is because the cap does not cover so-called ‘hotel costs’, which will continue to be charged separately once the cap is reached.
What does remain essential is seeking independent financial advice from a specialist care fees planner, who has knowledge and experience of this complex market. Planning effectively for the cost of long-term care can help avoid expensive mistakes and prevent wasting money or indeed running out of money too soon.
About the author
Martin Bamford is a Chartered Financial Planner, CFP professional and specialist care–fees adviser. As Managing Director of Informed Choice, an award-winning firm of Chartered Financial Planners in Cranleigh, he works with elderly clients and solicitors to provide specialist advice on care fees planning and trustee investments.
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