In this article, Colin Dyer, 1825’s National Advice Manager talks about Long Term Care.
We’re all living longer – which is great – and with good financial planning, it should be possible for the majority of us to make the most of our “third age” when we’ve retired. Whether it’s golf, gardening or global travel, we all deserve to enjoy the fruits of all those years when we’ve worked and saved hard.
That’s the view of retirement we’re all looking forward to, and it’s very much the future I hope for – for myself and for all our clients. To help make sure it comes true, it’s important to plan for all the different chapters of retirement; including the later years.
There are some hard-hitting statistics about the later years of retirement and it’s estimated that, from age 65, more than half of us will need some kind of long-term care at some stage. It’s a daunting thought that perhaps the vast majority of our assets may end up being spent to pay for care, so I want to focus on the proactive steps we can take to plan ahead. Starting with the bottom line…
…how much does care cost?
Let’s look at the costs: analysts LaingBuisson issued a report earlier this year that found that the national average cost of residential care in a care home currently stands at over £600 per week. That’s more than a whopping £31,200 per year.
If you need to be in a home that provides nursing care, the weekly figure shoots up to an average of around £1,000 per week.
Either way, it’s going to take sizable bites out of your wealth…
…and how can we pay for it?
There is state help for care fees, but it will depend on your income and if your assets are less than the threshold that applies to where you live in the UK. It’s £23,250 in England and Northern Ireland, but £25,250 in Scotland and £30,000 in Wales. If your wealth is greater than that, then you will be required to fund your own care.
Actually, funding your own care is probably something you really do want to achieve. Doing so will mean you can choose your own care home within your affordable means. If you need help from the Local Authority, then the amount you can spend per week will be limited and your choice of care home restricted accordingly.
Keep calm and plan ahead!
It’s at this point that you might feel you want to run and hide in a dark corner, but there really is no need to panic. As your average Scout might say, it’s important to “Be Prepared”. What that means in financial planning terms is that you can look at the problem in conjunction with all the resources and solutions available to you through your 1825 Financial Planner and you can plot a course that allows you to cope with any scenario that looks like it might derail your original plans.
We can use technology such as Lifetime Cashflow Modelling that lets us explore all sorts of possible events that might happen, including the need for care. We input all your financial details, project forward to see how they might stand at various points in your life, then see what happens if we throw the Long Term Care spanner into the works. If it looks like the effect would be too damaging, then we adjust your financial plan accordingly.
Will I need to sell my house?
This is a big question and one that can be really emotive. The answer is “not necessarily”. Here are two of the main points to bear in mind:
- Your home (or your share of it) won’t be counted in your assets when you’re assessed for help with care fees if your spouse/civil partner or a dependant lives there too.
- Local Authorities are obliged to offer deferred payment agreements. These are special agreements where the Local Authority puts a charge on your property and then pays the bills until the house is sold (either on your death or if it’s sold beforehand). There will be fees and interest charges involved, but it can allow the family home to be kept in the family.
Flexibility – finding the right approach
There are things you can do now to help future-proof your wealth. One important step is to make sure your investment strategy gives you the flexibility to change your portfolio to produce income when you need it.
Overall though, when it comes to paying for Long Term Care there’s more than one way to skin a cat* (or a retirement fund!). The approach you take will depend on your attitude to risk, how worried you are about running out of money, and many other factors that are specific to you as a person. Your financial planner will be happy to discuss all the different options with you in detail, and agree a strategy that works for you.
* No cats were harmed in the making of this blog and 1825 does not advocate the skinning of domestic pets.
Paying for it – pensions and plans
Pensions make great savings solutions, especially now that they can be accessed flexibly. You benefit from tax relief on the savings and, if you’re able to plan your withdrawals strategically, you can generate a very tax-efficient income. Your pension savings can be used to meet any future care cost and any surplus wealth not used in your lifetime can be passed down to future generations without worrying about inheritance tax. This is because your pension does not count as part of your estate.
The downside to using your pensions and investments to fund care is that these savings aren’t infinite, so if your main concern is around living beyond your means, this option won’t offer the security you’re looking for. Care Annuities – also known as Immediate Care Plans – could be a possible solution. They’re a kind of income plan you buy at the point of needing care that provide a top-up to help pay for fees for the rest of your life.
However, Care Annuities usually require a substantial upfront payment, and if you were unfortunately to die earlier than you may have expected, the balance of your payment may not be available for your loved ones, unless you specifically bought some protection against this at the time. Furthermore, if you use your pension to provide the capital to take out the plan, you could end up paying an unnecessary tax charge on the money you withdraw.
Looking into the Crystal Ball…
There was a time a few years ago when we were expecting rules about self-funding care to change, with a planned cap on the total amount you should pay for care. But the original introduction date was deferred and, with changes to Government priorities, a final position has yet to be resolved.
Health and Social Care has been much debated in recent months, particularly during the election campaigns. It’s certainly a topic of great concern at both national and local level. I expect to see it addressed at least to a certain extent in the next Parliament so will be keeping an eye out for new policies with great interest.
Don’t worry! Talk to us…
If you are concerned about the potential future cost of long-term care, my best advice is to talk to a Financial Planner about it. They understand the issues, know how the Local Authority support framework operates and, importantly, can show you what the impact could be on your finances if you or a loved one needs care in the future.
This blog and any responses to comments should not be regarded as financial advice. Laws and tax rules may change in the future and your tax treatment is based on your individual circumstances. The information here is based on our understanding in September 2017. Investments can go down as well as up in value and you may get back less than you pay in.