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As we get older, many of us may need help looking after ourselves. But what are the options when it comes to paying for long-term care? Long-term care involves a variety of services designed to meet a person’s health or personal care needs during a short or long period of time. These services are intended to help people live as independently and safely as possible when they can no longer perform everyday activities on their own.
Help looking after ourselves
Planning ahead for long-term care can help take some of the stress out of a difficult situation. For those who are considering care for a loved one, the choices can be daunting, and the costs even more so. It is a good idea to invest in financial advice from a regulated financial professional.
Medical advances and changes in our jobs and lifestyles have contributed to a big increase in the number of people who’ll live longer and healthier lives. But in those later years, many of us may need help looking after ourselves, either in our own home or perhaps eventually in a residential or nursing home.
Later life in residential care
One of the big challenges in thinking about paying for our own care is that we have no idea how much we might need. Many of us may face relatively modest costs, but some, especially those who spend years of their later life in residential care, could incur much higher costs.
Assessing how much you can afford
If you live alone and then 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 required, it’s worth also exploring the option of ‘deferred payments’ with your local authority, where the council initially pays your care costs which are then eventually repaid with interest at the end of your period in care, when your home is finally sold1.
Deferred payment agreements will suit some people’s circumstances better than others’ and not everyone will be eligible. Councils may charge interest on the amount owed to them, and there may be a fee for setting this arrangement up. This is to cover the costs the council incurs in setting up your deferred payment agreement, and not to turn a profit.
A deferred payment agreement means that people should not be forced to sell their home in their lifetime to pay care home bills.
How can I self-fund long-term care?
If you’re in a position where you have savings and investments, this is one way to pay for long-term care. It also ensures you can stay in your home and pass it on to loved ones as an inheritance. Care costs can also increase, particularly if you need to go into a more expensive nursing home. Understanding and planning for costs such as these can provide peace of mind knowing that your future is as secure as it can be.
If you’re not in a position to use investments or savings to fund your care these are some alternative options to consider.
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 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 to your family.
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 off2.
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-funder3.
In Scotland, it is £32,750, and in Wales, the threshold is £50,0003.
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 support3.
In Scotland, you need to have capital below £20,250 to be eligible for maximum support and in Wales, anyone with capital under £50,000 will receive fully funded care from the local authority3.
Funding your own care
Care needs may range widely and can change over time. Although we associate being elderly as when we require long-term care, you could require it at any stage of your life. Regardless of life stage, you may be wondering how to fund your own long-term care. For that reason, it is really important to consider long-term care planning.
1 August 2023 | Property and paying for residential care | Age Concern
2 2023 | What is a no negative equity guarantee? | Equity Release Council
3 10 August 2023 | Care home fees advice | 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 of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.