How to cover long term care fees

The average life expectancy for a female born in 2010 is a ripe old 82.3 years, according to the latest figures from the Office for National Statistics (ONS), while a baby boy born in the same year can expect to grace the earth for an average 78.2 years.

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But even many of today’s adult Britons are aware that, with the value of their pension pots eroding faster than they are, they will have to continue working longer than expected.  But what happens after that? It’s almost impossible to envisage real old age before we get there but, if we are ‘lucky’ enough to reach it, who’s going to take care of us, and how are we going to pay them?

When it comes to long-term care, rules and government budgets are akin to shifting sands but if you or someone you look after is going to need long-term care any time soon, here’s a summary of what to expect…

Staying in your own home

According to a recent long-term care survey carried out by consumer group Which?, 88% of Britons would prefer to stay in their own home as they enter old age – even if they are no longer able to physically cope.  And this means drafting in some help.

It is possible to employ care workers – also known as ‘home help’ or ‘care attendants’ – through your Local Authority (find contact details here) who will come to your home and provide personal care and practical support such as shopping, cleaning and cooking.

You will first need to pass a community care assessment test and demonstrate you are unable to complete tasks like this independently.

After the community care assessment, you will be told what care you might be eligible for. You will then need to undergo a separate financial assessment to establish how much you can afford to contribute to this cost. 

Unfortunately, state support for care at home varies considerably between Local Authorities so your post code as well as your wallet will also determine the amount you may be able to claim.

If you are not eligible for Local Authority funding, it is possible to organise private care in the home through an independent home care provider. Make sure it is regulated by the Care Quality Commission  as it legally should be. It may also be worth checking out local charities in your area, such as Age UK, to see if there is any other free support available to keep you in your home.

It may be the case that a family member is able and willing to look after you and the good news is they may not have to do it for free. The government pays a Carer’s Allowance if your carer meets certain criteria, such as being over 16 and spending at least 35 hours a week looking after you. It’s only £58.45 a week but many carers do not claim what they are entitled to.

You can find out more about Carer’s allowance by calling the Carer’s Allowance Unit on 0845 608 4321. Or you can make a claim to receive it online.

An equity release plan is another possible means of staying in your own home. This is where you take a mortgage against part or all of your property but don’t repay the loan until you die or go into long-term care and the home is sold.

Known as a lifetime mortgage, the interest (the rate is fixed at the start) rolls up but, so long as the equity release provider is a member of trade body, The Equity Release Council (formerly SHIP), the debt is guaranteed never to exceed the market value of the property at the time of sale.

Home reversion plans are the other kind of equity release plan. This is where you sell (rather than mortgage) all or part of your home upfront for a tax-free lump sum and are permitted to stay there rent-free until you die.

Clearly though, this means the price you sell for will be well under market-value. How much less will depend on your age – the younger you are, the less you will pocket. You can find out more about equity release plans at the Equity Release Council’s website. Always take independent financial advice before opting for any kind of equity release plan.

Residential care homes

For some elderly people, going into a live-in care home may be the only option available. But, even if you don’t require day-to-day nursing while you are there, it’s pricey.

According to a recent survey from nursing care agency, Prestige Nursing+Care, the annual cost of a single room in a UK residential care home in 2012, is a staggering £27,404, which is 5.6% or £1,451 higher than last year, and more than twice the rate of inflation.

On this basis, the average older person’s savings pot would only be able to meet residential care costs for seven months, the research found. Average costs in some parts of the country are higher still, with London having even broken the £30,000 barrier.

If you require day-to-day nursing in your residential care home – or are moving to a specialist nursing home – costs are higher still. According to not-for-profit website, Payingforcare.org, the average cost of a nursing home (or a residential home where nursing is required) is a staggering £37,500 a year. 

Even if you don’t need nursing care now, you may in the future. So how on earth can you pay for it? We take a look at the options:

See where you stand with your Local Authority

Many people are still under the impression that, if you are unable to look after yourself and need to go into a care home, the state will pick up the bill. But for many elderly people, this is not the case.

Nevertheless, you should still make your Local Authority your first port of call if you are planning on going into long-term care. It will carry out an assessment to see how much financial help you may be eligible for. As a benchmark, if your financial assets (which, unfortunately, includes your home) combine to a total value of less than £14,250, you are likely to qualify for full Local Authority funding for long-term care.

At the other end of the scale, if you have more than £23,250 in total assets, you will normally be expected to pay for your own care in full. And if you have assets between these two amounts you could receive partial Local Authority funding, although in this case you will be expected to pay £1 a week for every £250 of value over £14,250.

It’s important to note that, even if you are accepted for all or some government funding, your choices of which care home to attend will be severely limited. 

Use your capital to generate an income flow

If you do not qualify for adequate funding from the state for your long-term care, and you are a property owner, the obvious solution is to sell-up or downsize and release the equity. If you have dependants and want to hang onto your home until they can inherit, you could consider renting it out instead, which would mean retaining your capital. 

This is a contentious and difficult choice that an estimated 20,000 older people face every year, according to Payingforcare.org. If you release capital from your property you should invest in a way that provides a steady and secure stream of income – for example, from government bonds, a savings account or low-risk equity investment – which will meet your monthly care home fees.

However, you will have to factor in tax which will be payable on both investment income (though not ISAs) and rental payments.
Your income from capital may also fluctuate while care home fees are likely to stay the same or rise – so this may not always form an adequate income.

Buy a care fees annuity

If you are going into residential care as an elderly person, or are arranging this care for someone else, it is possible to buy a specialist product (an annuity) that will guarantee an income to help fund care costs for the remainder of your life.; As well as protecting remaining assets this can bring peace of mind for those going into care and their family.

An Immediate Needs Annuity (INA), also known as a care fees plan, is a product which will immediately pay a regular tax-free income to your registered care provider, and continue to do so for the rest of your life, in return for a one-off premium. If for any reason you leave residential care, the income will be paid directly to you. However, this income will then be taxed.

While annuity income is usually fixed and care home fees are probably only going to rise, a specialist care fee advisor may also reach an agreement with the care home on your behalf in order to factor in these rises upfront – say by 3% a year – and include this in the cost of annuity. This will free you and your family from any concerns about meeting future rising costs of care.

In short, an Immediate Needs Annuity guarantees against running out of money whilst in care and falling back on the state – a traumatic scenario that applies to an estimated 25% of self-funders many of whom must move from their care home of choice into an alternative one. 

The one-off payment or premium to purchase an annuity is typically paid through the sale of property. However options are available which enable people to fund their care without having to wait for the sale of their principal property. Other options include a ‘money back guarantee’ to address anxieties about the loss of the entire premium if the policyholder dies within the first six months.

You can find out more about ways to fund care as well as make contact with specialist care fees advisers at Payingforcare.org. However, it’s always worth shopping around for the most competitive annuity on the open market.

Take out a long-term care plan

If you have a lump sum available, you could also consider buying a long-term care plan. These fall into categories of Immediate Funding and Deferred Funding, depending on when you need the money.

Once purchased, the company that provides the plan will then pay out money to help fund your care fees – for as long as you stay alive. The longer this is likely to be, the more expensive the care plan will be. It is possible to have the plan paid directly to the care home which, as discussed, can be a tax-efficient option.

To get a better idea of average costs of a care home in different parts of the country, take a look the Payingforcare calculator

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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