Paying for long-term care: what are your options?
Almost half the UK’s population believes that if they need social care, it will be funded by the NHS: according to research conducted by the Local Government Association, 44% of people think – wrongly – that the health service will pay for their care home costs or in-home care1.
In fact, the reality is that the majority of us will have to foot the bill for our care when the time comes, should we need it.
What’s more, those costs are frequently much higher than many people expect. For example, the average annual cost of a standard residential care home in the UK is £34,000, while for more specialised nursing care, it’s around £48,000 on average2. Even care in your own home – for example, someone visiting for two hours a day seven days a week – averages £15,000 per year3.
“It’s important to make sure that people don’t fall foul of any misconceptions when it comes to paying for social care,” says Tony Clark, Senior Propositions Manager at St. James’s Place. “And even when the cap on care costs comes in, as recently announced by the government, this is more complex than it seems, and while it will help towards limiting some of the costs, but it won’t alleviate all of them.”
It’s therefore likely that many of us will have to face up to making financial provision for our own care, particularly as we’re living longer as a society, thus increasing our chances of needing support in older age. “There’s a good chance that most 30- to 40-year-olds around today will be living well into their nineties and many of them will need care,” says Clark. “So whether you’re that age, or in need of care right now, you’re going to have to figure out how to pay for it.”
Whatever your situation, the most important thing to do, Clark stresses, is to speak to a financial adviser, particularly as the rules about who pays for what are so complex, not to mention regional variations and what’s likely to happen in the future as the government implements its new policy.
“An adviser will help you and your family work through what you pay for and what you don’t pay for, as well as the different ways of funding your care, as there is no one set formula,” says Clark. “For example, you might not know what level of care you’re likely to need or how your care needs are likely to increase in the future – so it’s going to be different for everyone.”
The various funding options available to you are as follows:
This could be from, for example, your pensions and existing savings and investments, or rental income, and might be enough to cover some or all of your care costs.
This could include money you hold in cash, ISAs or other savings accounts. Here, you’ll need to be careful your capital isn’t eroded too quickly as interest rates are currently so low.
Unit trusts, shares and investment bonds are the most common options here. However, caution is required as the investments that offer the greatest potential chance of growth are usually the highest risk, therefore striking a balance will usually be important.
Immediate needs annuities
These are also known as ‘care fee plans’. In return for a one-off lump sum, you receive a guaranteed tax-free income for life, as long as it’s paid directly to the care provider.
Of course, selling your home is one option – but not always necessary. Other courses of action you could take include:
- Equity release: If you are receiving care in your own home, various options are available here, which all involve borrowing against the value of your home, which will be paid back after you die and when the property is sold.
- Renting: Letting out your property is a way of receiving an income while also not having to sell it, thus allowing you to pass it on to your loved ones as part of your estate. However, management costs can eat into a lot of your income and you also run the risk of the property being vacant.
- Deferred payment agreement: If you qualify, this enables you to receive a loan from your local authority secured against your home. The debt must then be repaid, plus interest, within 90 days of your death, usually through the sale of the property.
While it’s important to have a good understanding of all of these options, Clark strongly advises not to make any decisions without first seeking expert advice – not least because of what could happen if your money runs out and you’re no longer able to pay your care home fees.
“There are so many pitfalls,” he says. “And if you run out of money, you run the risk of falling back on the state. Some people might think that’s OK, but if that happens to you, you’ll end up severely limiting your choices when it comes to care – and the one thing you want in order to be able to retain your dignity in older age is choices.
“There are so many ways of paying for your care and there are no right or wrong answers,” he adds. “So it’s all about having a plan in place that you’ve drawn up with an adviser. That’s the only way to do it while feeling reassured that your financial future will be secure.”
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
1 Majority of people unprepared for adult social care costs, Local Government Association, October 2018
2 Payingforcare.org, 2020 (Based on Laing & Buisson report 2020)
3 Moneyadviceservice.org, 2021