Long Term Care – How Can You Plan Ahead?

Financial Planner Carl Reitel explains how long-term care funding works in the UK and whether you would be eligible.

Long-term care is becoming more of an issue, particularly as we are all living longer. At age 65, men in England can except to live another 8.9 years in good health; women can expect to for 9.8 [1]. When we put this into the context of the fact that the number of centenarians worldwide is expected to reach 573,000 this year, it is a very real possibility that some of us could spend a quarter of our lives needing some form of care in retirement. Indeed, by 2030, it is expected that 6 million people aged over 65 will be living with a long-term illness or disability [2].

Not everyone will need the same level of care, though. Some care might be able to be provided by family, but professional care generally falls into one of four categories:

  • - Residential care – care is provided in a care home.
  • - Nursing care – where additional medical care is required from a registered nurse.
  • - Sheltered housing – self-contained accommodation designed for you to live
  •    independently but with access to on-site care.
  • - Domiciliary care – care is provided in your own home.

In 2019-20 the average cost of residential care in England was £681 per week, or £35,250 p.a. For nursing care, it was even higher, at £50,908 p.a. [3] Considering that the average gross salary in the UK was £31,461 p.a. last year [4], this means that for many of us, care in later life will cost more than we earned during working life, let alone in retirement. So how can we expect to fund this?

The Local Authority is responsible for the assessment of your care needs. The initial checklist assessment may be completed by your nurse, doctor or healthcare professional or social worker. If you meet the criteria for care, a full assessment will then be carried out by a minimum of two healthcare professionals. As part of the assessments, they will identify whether you qualify for NHS Continuing Healthcare, in which case your care will be fully funded. If you are not eligible then NHS-funded nursing care might instead be available, which is paid at a flat rate of £187.60 a week towards the cost of a registered nurse.

If you do not qualify for these benefits then you will receive a financial assessment, which will take into account any pension income, state benefits, savings, investments and assets. If you own your house solely and have no financial dependents living with you, this will also be taken into account. If your total assets are below £14,250, the Local Authority will fund your care costs (but only to a certain extent – funding is based on the average cost of care in your area, not necessarily the best!). If your assets are between £14,250 and £23,250 then Local Authority support is reduced accordingly, and if your assets come to £23,250 or more then you will be responsible for the full cost for any long-term care costs.

The local authority will also consider if you have deliberately reduced the size of your estate in order to benefit from the local authority funding care costs by looking back as far as they want (usually up to 30 years) into your financial history.

For example, Doris, aged 82, lives on her own in a property worth £400,000 and has no savings. Based on this, should she need long term care in the future, she would be expected to sell her home (or at least take out a loan against it) to fund this. Doris considers gifting her house to her son but continuing to live in the property. Her Financial Planner explains that this would be classed as deprivation of assets, because she has given away a significant asset with no other justification (whilst continuing to benefit from living in the property rent-free). The Local Authority will include the property value in any financial assessments they make, despite Doris no longer owning the property and therefore is no longer in the position where she could sell it to raise the funds for her care.

So, what does self-funding actually look like? For some, it can mean drawing on existing investments and savings to pay for the cost of care. For others like Doris, it can even mean needing to sell the family home. This could mean that you need to use what was intended for your children’s inheritance to fund care. Even then, this may not last as long as you think based on the average cost of care.

There are alternatives that should be considered though. Firstly, you might qualify for state benefits that can be put towards your care costs. Attendance Allowance is available if you have reached State Pension age and have a disability; it isn’t means-tested and can top up your income by up to £89.60 per week. You can’t claim Attendance Allowance if you live in a care home and the Local Authority is funding you care.

Rather than drawing on your savings and investments gradually to fund your care, you could use these to buy an Immediate Care Annuity. Much like with a pension annuity, these types of plan require a lump sum payment that then produces a regular income to cover the cost of the care. This could provide you with the peace of mind that, no matter how long you live, your care will be funded. On the other hand, when you die the annuity will die with you – if the lump sum you paid is still more than the income that’s been paid out, the annuity provider pockets the difference rather than your loved ones.

Careful planning is clearly essential to ensure long-term care costs can be met if they are needed later on in life. Whether you intend to live off of your savings and assets or use them to purchase an annuity (or a combination of the two), setting out your strategy now with a financial professional could give you the peace of mind of knowing that, should the time come, you will be well-prepared.

Carl Reitel DipPFS
Financial Planner

The scenario included is for information purposes / general guidance only and should not be interpreted as advised recommendations.

The value of investments and income from them may go down. You may not get back the original amount invested.

Past performance is not a reliable indicator of future performance.

Information is based on our current understanding of taxation, legislation, and regulations. Any levels and based of, and reliefs from, taxation are subject to change.

[1] The Future of an Ageing Population

[2] Future Ageing Trends

[3] Care Home Fees

[4] Average UK Salaries

[5] https://www.gov.uk/