Paying for long term care: your questions answered
Budgeting for long term care is not always high on people’s financial planning agenda but with life expectancy increasing, care home fees could be a potentially big outlay for many of us.
YourMoney.com asks Frances Ross, product manager at Partnership, all the important questions about funding long term care:
Will I need to pay for care?
Yes, while some people assume that domiciliary care (i.e. care in the persons home) or residential care (i.e. care in a care home) forms part of the NHS and is therefore free, this is not the case. Indeed, residential care typically costs £28,964 per year and domiciliary care is charged on an hourly basis.
In order to standardise the assessment of paying for care in England, the Government included it in the Care Act 2014. The first part of the Act came into force in April 2015 with the remainder becoming applicable in April 2016.
How much will I need to pay for care?
The amount a person might need to pay for care is determined by how wealthy they are, their level of need and where they live. To add to the complexity, Scotland and Wales also operate slightly different systems so how much someone pays and whether they receive state support very much depends on their location.
In order to be considered for state support, a person needs to be judged to have severe/critical needs when they are assessed by their local council using the ‘activities of daily living’ criteria.
- If a person has assets above £23,250 then they are likely to need to pay for their care. Some assets are excluded as – for example – if they own a home but their husband/wife lives in it then this is not counted towards the total.
- If they have assets below £23,250 then they may still need to make a financial contribution to their care which will be worked out depending on the assets they do have. So for example, they may pay £4 towards care for each £1,000 they have in assets.
From April 2016, this will change as the second part of the Care Act comes into force. Therefore:
- People will be eligible for some local authority financial support if they have assets below £118,000. The level of support they can expect depends on the amount of assets they have as for each £1,000 above £17,000 they will need to pay £4.
- The Government has also said that no one will have to pay more than £72,000 for care but this does not include hotel costs [i.e. room and board] or any charges above what the local authority would pay [this differs by area ].
|Example – Bob is an 84 year old widower with severe needs and has moved into a nice care home which charges £28,000 per year. The council says the average care home in this area only charges £24,000 so they will only take this amount into account and they will also not pay hotel costs of £12,000 per year. So, each year only £12,000 counts towards the £72,000 cap which means it would take 6 years [and cost £96,000] to hit the cap.|
How can I fund care?
There are a variety of options that people can choose but generally, it is one – or a combination – of the following:
- Immediate Care Plan – this is an insurance policy which in return for a lump sum guarantees to pay a regular income towards a person’s care costs for the rest of their lives. Deferred Care Plans also exist which start paying a regular income after a set period such as two years and are used if people have some assets but want the security of knowing they won’t run out of money.
- Using their assets – i.e. liquidating the proportion of their assets each year that they need to meet the costs of care. This might mean selling investments or their home to meet these costs.
- Use income from their pension/investments – some people who have a defined benefit pension scheme and sufficient investments can meet the cost of care from this income. However, with care costing around £28,964 in England, this may not be an option for many.
- Using equity release – while an equity release plan is redeemed if someone goes into care, if their partner is still resident in the home and they wish to use the equity to pay for care, this can be an option.
What happens if I run out of money?
If a resident in a care home runs out of money then the local authority will step in to meet costs. However, they will only pay their agreed rate so the person may need to be moved to a new care home where the local authority rate is accepted.
What should I do if I think that a relative of mine may need care soon?
Firstly, it is vital to have the conversation with the person about the potential need to have some level of care. This does not necessarily have to be in a care home but could be in their own home or in sheltered accommodation so there are a variety of options available.
The next step is generally to consider what assets they have which could be used to pay for care and to contact their local authority to learn more about how the system works in the area they live.
The system can be very complex and to ensure that the best options are chosen, you may wish to speak to SOLLA [Society of Later Life Advisers]. This organisation specialises in helping people to find experienced advisers who can help them with funding decisions.
When should I start planning to pay for care?
Not everyone will need care in later life but it is vital that you have some idea of how you could pay for it if you do need it. The first step is to gain some idea of just who much it might cost as this will enable you to make smart choices around how you manage your assets in retirement. You may wish to view your home as a potential source of funding or part of your pension pot – these are all options to consider.