THE GOOD news is, we can all expect to live longer. The bad news is, the older we get, the more likely it is we will need some kind of long-term care – care which, in all probability, we will have to pay for.
From the perspective of planning our finances and, crucially, the estate we want to leave to our children, that creates a dilemma. Residential care in particular can be very expensive and can wipe out wealth that we would much rather pass on to our loved ones. It is commonplace for many elderly people to even have to sell their homes to fund care.
Things should be changing, with a raft of government proposals to make care funding less of a burden on individuals. But with these plans up in the air and shrouded in uncertainty, the only safe bet seems to be to take care funding into your own hands – and start to make contingency plans early.
The current state of care funding
As things currently stand, everyone with assets of more than £23,250 has to pay for their care in England & Wales. If you need what is known as home or domiciliary care – i.e. help and support in your own home with washing, cleaning, cooking and medical care – this threshold does not include any property you own.
If you need to go into residential care, however, this does include the value of your property, which means virtually every homeowner now has to pay. As we have noted, residential care costs are very high, so this puts a huge financial burden on individuals, leading to homes being sold and estates being wiped out.
The government recognised this was a pressing problem several years ago. It passed a new Care Act which places a total cap of £72,000 on the amount individuals have to pay for care, not just in old age, but throughout their lives. Any wealth above £72,000 is therefore protected.
This should have been introduced in April 2016. But there was a problem. Local authorities, which were charged with picking up the tab on any care costs above the £72,000 personal contribution limit, pointed out that they simply could not afford it – to the tune of a £4.3bn shortfall, in fact. Introduction of the Care Act reforms were delayed until April 2020, and there is some doubt whether they will ever see the light of day.
In the meantime, in the run up to the last election, the Conservatives proposed raising the contributions floor threshold from £23,350 to £100,000. As this would include property assets for all types of care, it would not make much difference for the majority of homeowners. This pre-election suggestion has not been heard of since, and we remain with the £23,350 floor.
Care funding options
Given this uncertain regulatory climate, the expedient thing for anyone wishing to preserve as much wealth as possible for their families is to include potential care costs in their financial planning. They may, of course, be plans you never have to put into action, but having a safety net in place is preferable to seeing your wealth disappear should you end up needing long-term care.
There are numerous options available for funding care which can be adopted as part of a wider strategy of financial planning for later life. While pensions give you a steady income in retirement, you should always expect the unexpected. Later life financial planning is about putting contingencies in place, with potential care costs being the main consideration.
The best option for planning to cover care costs in advance is regular savings into investments. The assets from any kind of portfolio and holdings can be used to cover care costs. There are, however, certain types of investment bonds which are specifically marketed for care purposes, offering long-term investments focused on capital growth. Speak to a financial adviser about how to build an investment portfolio which gives you a care cost contingency.
If you haven’t put plans into place in advance and are confronted with the need to pay for care, there are still various options available. Immediate needs annuities act like an insurance policy in return for an up-front, lump sum payment. They provide a guaranteed, tax-free income for life paid straight to your care provider.
Alternatively, if you are a property owner, your home can be used to fund care costs without having to sell. Many local authorities will offer homeowners a deferred payment option – they will cover your care costs while you are still alive, and then recover the costs from the sale of your property following your death. If you have paid off your mortgage, or are close to doing so, equity release schemes can also provide you with finance in the form of loans secured against your property. However, these schemes give the lender a stake in your property and can also have implications on tax and benefits, so it is important that you seek financial advice before committing.
By Paul Newham for Fiducia Wealth