Long term care - thinking the unthinkable
Updated 13 September 2016
Few people can imagine spending their final years in a care home. Most of us prefer to believe it won’t happen. Let me give you some good news: the majority of people don’t end up in a care home.
The risk of ending up in a care home of one sort or another is less than 1% for people aged 65-74. This rises to just under 16% for people over 85 (Laing & Buisson, 2014). If these percentages hold true for future generations of retirees, the majority of people won’t end up this way.
That’s the good news. The bad news is that if you do require residential care at some point, it can be expensive and you may end up paying for it.
On average, a one year stay in a nursing care home cost £39,312 for the financial year 2014/15 (Laing & Buisson). What's more, the average stay in a care home is 4 years (Partnership).
Who pays for the costs of a care home?
If the total value of all your capital exceeds certain limits you’ll be required to fund all or part of your care. In this context, capital includes any savings and investments you may have plus the equity in your home is also included. The current limits (September 2016) are:
- England: £23,250
- Wales: £24,000
- Scotland: £26,250
- Northern Ireland: £23,250
If you have less than these amounts, you may still be required to contribute towards the costs of your care. In England, for example, you must have less than £14,250 in capital before the cost of your care will be funded entirely by the State.
If your total capital is between £14,250* and £23,250 you’ll be required to contribute towards the costs of your care. It works like this: You’ll be asked to contribute £1 per week for every £250 in capital you have over £14,250.
If you have capital of £19,250, that’s £5,000 over the £14,250 limit, you would be required to contribute £1 per week for every £250 over the £14,250 limit.
That means, in this example, you would be required to contribute £20 per week towards your care.
Are all my assets included in calculating how much I have to pay?
Fortunately not. There are exceptions. Commonly these include:
- Your home will be ignored in any calculation if any of the following circumstances apply:
- If you have a spouse or partner still living in the property
- If it is occupied by a relative more than 60 years of age
- If a disabled relative lives in the property
- If you are responsible for a child under 16 who still lives in the property
- If you hold investments jointly with your spouse or partner, only half of the assets can be taken into account in assessing how much you should pay toward your care.
- Investment bonds are lump sum investments issued commonly by insurance companies. These products are usually ignored in any assessment.
There are other methods of reducing the capital used in any assessment and this list is not exhaustive. You should seek professional advice if you would like to learn more.
What if I need care in the home?
Care provided in the home used to be free, but these services can now be charged for. However, there is no consistency between one Local Authority and another over what’s charged and the level of charges. Generally, costs of care in the home are much less than the costs of a care home. Indeed, often much of the care is undertaken by family and friends.
What help can I get towards my costs?
We’ve already discussed the circumstances in which people are required to pay for care home costs and the rather arbitrary approach to charging for care in the home.
It’s also worth mentioning that, irrespective of whether you qualify for help with your costs, you may still be eligible for either:
What’s more, if you go into a residential home that provides nursing care you may qualify for a Registered Nursing Care Contribution from the NHS. This is paid directly to the care home, but will reduce the amount you have to pay accordingly.
How can I cover the costs of a care home if it happens to me?
If you’re liable for the full, or a part, of the costs of any nursing home care you may require, there are a number of options open to you to pay for this. Here are some you could consider:
- Pay from your income or savings and investments. Obviously, if you can afford to pay as you go from savings or income from pensions, for example, this may be the easiest solution. However, if you don’t know how long you may require nursing home care (and it turns out to be several years), this could be a significant drain on your savings.
- Sell your home. Another option is to sell your home. For many people, this could release a significant amount of capital that could be used to fund care home fees. However, this may not be possible or desirable. If you’ve lived in your home for many years you may have an emotional attachment, even though you’re not living there.
- Deferred Payment Scheme. If the value of your assets, leaving aside the value of your property, is less than the capital limit (and you don’t want to sell your home), you can ask your local Social Services department if they will allow you to defer payment. The scheme works like this: you don’t have to incur any of the costs of your care and you repay the amount when the property is eventually sold. Social Services effectively take a charge on your home like a mortgage lender (except the loan is interest free) and claim back what they’re owed from the proceeds of the sale of your property.
- Equity release schemes. If you want to use the equity in your home, but are reluctant to sell the house, you can always use equity release to fund your care. Modern equity release plans allow you to take income when you need it rather than take a lump sum all at once. The benefits of this are that you only start to incur interest on the amount you withdraw at any time. In contrast, if you take a lump sum you start to build up interest on the whole amount immediately.
- Immediate needs annuity. These products work much like a conventional annuity. You pay a lump sum to an insurance company who then pay a guaranteed income for the rest of your life, however long you live for. The annuity can be an increasing annuity to offset the impact of inflation. The key attraction of this approach is that you know how much you have to pay in advance, however long care may be required for, and the rest of your capital can be used as an inheritance for your family. Of course, if you die soon after taking out the annuity you may have paid more than you need to for your care. The average purchase price of an immediate needs annuity is £85,000.
- A recent innovation. Some equity release companies now market a product that uses the equity in your home to buy an immediate needs annuity automatically. The payments from the immediate needs annuity are made directly to the care home. By making the payments directly to the care home, you never receive any income - so you don't have to pay income tax on the payments.
This is a complex area and at the beginning of your retirement perhaps not one that you want to spend too much time thinking about. But it’s good to be aware of the issue and the options you have sooner rather than later. It’s terrible to contemplate, but you might not be in a position to consider your options rationally at the time care is required so it can be useful to discuss the matter now with your family to make your views known.
It is also recommended that you seek financial advice.
Proposed changes to paying for long term care in the UK
The government has announced radical changes to the way in which we will pay for long term care costs in the future. The main proposals are:
- The introduction of an overall limit on the total amount someone will be asked to pay for long term care. The cap will be set initially at £72,000. However, the cap does not apply to the costs of accommodation, only the cost of care being received.
- The capital limit will be increased to £118,000. Consequently, if you have assets greater than this you’ll be required to pay for the costs of care until the £72,000 cap has been exceeded. For people requiring care at home the lower limit of £23,250 (England and Northern Ireland) will still apply.
- The removal of the need for people to sell their home to pay for the costs of care. A new ‘universal deferred payment’ scheme will be introduced in 2015. This will allow people to borrow against the value of their home. Their estate would subsequently pay back the loan on death.
Apart from the universal deferred payment, the changes are due to be introduced in 2020.
* This figure is £15,500 in Scotland and £14,250 in N. Ireland (there is no lower limit in Wales).