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Living a long and healthy life is something we all aspire to. Medical advances and changes in our jobs and lifestyles have contributed to a big increase in the number of people who are living longer.
However, at some point ill health, frailty or lack of mobility may mean that we are no longer able to care for ourselves or live independently. We may need support to stay in our own home, or eventually need to move into a residential or nursing home.
Long-term care provision can help to meet health or personal care needs over the short or long term, enabling people to live as independently and safely as possible when they can no longer perform everyday activities on their own.
One of the biggest challenges when thinking about long term care is knowing how we will pay for it, particularly as we have no idea how much support we might need, or how long we’ll need it for. Some may face relatively modest costs, but for others, especially those who spend years of their later life in residential care, the costs incurred could be much higher.
Funding long-term care
For those who are considering care either for themselves or for a loved one, the choices can be daunting, and the costs even more so. Planning ahead for long-term care can help take some of the stress out of a difficult situation, but this is a highly specialised area, so it would be wise to seek guidance from an appropriately qualified and regulated financial professional before taking action.
Consider savings, investments and property
If you live alone and need to go into residential care, your local authority will take account of the value of your home when assessing how much you can afford to pay towards your care costs. For many people this could potentially mean selling their home to pay for care.
If you have sufficient savings and investments, these could be used to pay for long-term care, which could enable you to keep your home and pass it on to loved ones as an inheritance.
If not, it is worth exploring the option of ‘deferred payments’ with your local authority, where the council initially pays your care costs. The costs are then repaid with interest at the end of your period in care, when your home is finally sold.1
A deferred payment agreement would mean that people should not be forced to sell their home in their lifetime to pay care home bills.
Deferred payment agreements will suit some people’s circumstances more than others, and not everyone will be eligible. Councils may charge interest on the amount owed to them, and there may be a fee to cover the costs that the council incurs in setting up the deferred payment agreement.
Alternative options to consider
Equity release
If you have paid off or have nearly paid off your mortgage, equity release schemes can allow you to access money that’s tied up in your property to fund for your care needs. There are two options to consider: a Lifetime Mortgage, or a Home Reversion Plan.
Lifetime Mortgages
Lifetime mortgages are loans secured on your home and repaid at the end of the term when your property is sold, when you move, move into a care home, or pass away. You can take the loan amount as either a lump sum or in smaller drawdown amounts. When your property is sold and the loan is paid off, any remaining funds are paid according to your wishes.
It is important to consider that a fall in property prices could mean the property may be worth less than the outstanding loan amount, which could leave families struggling to make up the shortfall. However, most mortgage companies now offer a ‘no negative equity guarantee’ which helps to avoid this as the guarantee means that you, or more specifically, your estate will never owe more than the property is worth when it is sold and if this turns out to be the case the remainder of the loan will be written off.2
Home Reversion Plans
You sell all or part of your home to a home reversion company for less than its market value in return for a cash lump sum, a regular income or, a combination of the two. You then continue to live in your own home as a tenant, paying no rent, exactly as before.
When your house is sold, the reversion plan company is paid from the proceeds. This form of funding is a higher risk option and can carry implications for tax, benefits, Inheritance Tax, and long-term financial planning.
When considering either of these options it is essential that you seek professional advice from a qualified and regulated financial adviser to ensure that you are making the right decision to suit your individual circumstances and are aware of any risks or drawbacks to the arrangements.
Immediate needs annuities
These are typically purchased with a lump sum, usually from a pension pot. An immediate needs annuity guarantees a regular monthly income to pay your care costs until you pass on. You can opt to have the allowance paid directly to your care home and the income is tax-free, helping you to make your money go further. The level of income depends on your age, health, life expectancy and the level of income you will need.
When will a local authority pay for a care home?
To decide if you’re eligible for financial support for a care home, your local authority will first carry out a free needs assessment to work out what level of care you require.
If you’re assessed as having ‘eligible needs’, the authority will then carry out a financial assessment to decide how much you should pay towards the cost of your care and how much should be funded by the council. This is sometimes referred to as the ‘social care means test’.
Capital limits for care
There are thresholds for savings and assets, known as ‘capital limits for care’. If the value of your savings and assets is more than the capital limit in your area, you’ll need to pay for your own care.
The amount you have to pay towards your care will depend on where you live in the UK. Currently if you live in England and Northern Ireland and have assets of more than £23,250, you will have to pay the full cost of your care and are referred to as a self-funder.3
In Scotland, it is £35,000, and in Wales, the threshold is £50,000.3
Anyone with capital below these amounts will qualify for some financial support. In England and Northern Ireland if you have capital below £14,250 you should get maximum support.3
In Scotland, you need to have capital below £21,500 to be eligible for maximum support and in Wales, anyone with capital under £50,000 will receive fully funded care from the local authority.3
Consider your own long-term care needs
Care needs and costs will vary widely and can change over time. Although we associate being elderly as the time we may require long-term care, you could need it at any stage of your life. If you have personal health needs, or elderly relatives who are becoming less able, it may be worth considering how these care needs will be funded and to consider long-term care planning.
Sources:
1 August 2023 | Property and paying for residential care | Age Concern
2 1 April 2019 | What is a no negative equity guarantee? | Equity Release Council
3 4 July 2024 | Care home fees and funding | Who pays for what? | Carehome.co.uk
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content was accurate at the time of writing, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.
The Financial Conduct Authority does not regulate advice on taxation, Trusts, Estate Planning, lifetime cash flow planning, Will writing and certain aspects of corporate services.
FP2024-343 – Last updated July 2024