Anyone thinking that the State will fund all of their long-term care may need to think again says Tim Bennett. This week he looks at what families can do to address a growing financial challenge.

How to prepare for the cost of care

Paying for long-term care is one of the biggest financial challenges facing our ageing population and yet it also one of the least well-understood. This may be for several reasons;

·         We don’t want to think about it

·         We are all worrying about paying for retirement, let alone long-term care

·         We assume (wrongly in many cases – see below) that the State will pay

So this week I offer a snapshot on the scale of the problem and what we can do, individually, to address it.

The context

As the next chart shows, long-term care costs are one the last big financial challenges many of us will have to meet. Sadly, however, they are by no means the least – care costs for “self-funders” (people who do not qualify for support from the State) are rising at well above the rate of inflation in most cases from an already high base cost that can easily reach £1,000 per week, or more over a time period that can average several years or more.

A growing problem

The next slide gives some idea of why long-term care costs are fast becoming one of our biggest challenges. In a nutshell, we are being squeezed as an ageing nation by a combination of unhelpful factors. Yes, the fact we are living longer than ever before, on average, is something to celebrate. However, we are not living healthy lives in many cases as the various afflictions of old-age take their toll.

A rising cost

Couple that somewhat depressing situation with rising care fees, as the State tries to limit its spending on this challenge, and it’s clear that many people are not prepared when it comes to either preparing for, or funding, their old age.

How long will I be in care?

The average time span for care, whether given at home or in a residential, or nursing, home varies considerably. The next slide gives a snapshot of the sort of costs you could be faced with;

Who will pay?

Anyone thinking that this is a cost that will be born largely, or even at all, by the State needs to think again. Yes, there is NHS support available if your health deteriorates to a point where you qualify for it, however, the criteria being applied are being tightened all the time. Then there is your Local Authority, which will step in to help with care costs but only once your assets drop below a certain point and even then only up to an amount that they feel is reasonable. This may, or may not, be the actual cost you are incurring, at which point you need to think about how any difference will be met.

The mythical “care cap”

Some will remember a proposal put forward by the government that suggested that the cost of care might be capped. However, since the last General Election the status of this proposal has been cast into doubt. Besides, as the next slides summarises, it was never likely to cover all care costs even in its original form.

What to do

Uncomfortable as it undoubtedly is to think about our own deterioration and care needs, simply ignoring the problem is not a good idea. Planning is vital, both in terms of how you would like to be cared for and how your family will meet the cost.

However, don’t assume that this means you can reckon on giving your assets away to reduce the sum available to the State later. The rules on what is called “deprivation of assets” are now pretty strict and don’t work exactly the same way as the equivalent inheritance tax “gift” rules. In short, you cannot rely on quickly moving assets around your family to avoid paying care fees.

In a typical care home, 50% of us will end up paying for some, or all, of our care costs. The reality is that, as a result, many people will be forced to use not just their cash and investment savings but also potentially the equity in their homes where a property is not occupied by a primary carer, such as a spouse. Since there are various ways to do this, you should weigh up the options carefully.

Conclusion

This is, in short, a potentially stressful and complicated stage of life, with several key decisions required not just about the right type of care but also how it will be paid for. As such, it is the elephant in the room in so far as everyone knows it is there but equally, no-one really wants to have to recognise it, including the government it seems. If you would like to run through some of the planning issues that, once solved, can make the whole challenge more visible, as well as manageable, please contact an Investment Manager or Wealth Planner.