Is your wealth ready for long-term care?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
In 2021, then Prime Minister Boris Johnson announced an £86,000 “cap” on the total amount an individual would pay on care (to be introduced in October 2023). With the arrival of Chancellor Jeremy Hunt’s new Autumn Statement, however, the government has now delayed these plans for two years (until October 2025) – after the next general election. This has raised many new questions about how people should approach the cost of care.
How likely are you to need long-term care, and what are the ballpark costs? How can you protect your wealth from unnecessary erosion from care costs – especially if you hope to pass down an inheritance one day? In this article, our Grantham financial planners offer some thoughts to help you process these important questions. We hope you find this content useful. If you want to discuss your financial plan, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
The likelihood and cost of care
In 2020, there were 490,326 people living in care homes in the United Kingdom. It is not clear how many people will need at least some degree of care in their lives, but the government puts estimates at 75% of adults over 65. An individual could need care at any time in life, but the average age is 84. Older people stay in a residential care home for 30 months at an average cost of £32,000 per person in year one (likely rising in subsequent years). This means that, if an individual needs care, the total cost might be around £82,000 over two and a half years. Yet the total could be much lower (or higher) depending on your needs and circumstances.
The delayed social care cap
Perceptive readers will notice that this aforementioned £82,000 falls under the previous UK government’s commitment to “cap” an individual’s total lifetime care costs at £86,000. Even had it arrived in October 2023, therefore, most people would not have benefitted from it (although one in ten people aged 65 in England will likely incur social-care costs of £100,000 or more over their lifetimes, so it may eventually help some people avoid needing to sell their homes to help pay for care). The policy has proved very troublesome for “Red Wall” members of parliament (Conservative MPs in the north and Midlands). This is because people who own homes valued in the tens of thousands, rather than hundreds of thousands (e.g. prevalent in the southeast of England), would still stand to lose a greater percentage of their wealth when paying for care out of their own pockets (due to how the cap is reached).
Chancellor Hunt appears to have shelved the care cap policy for now – possibly to allow more time to address some of these concerns. However, it is not clear how these might be resolved, or if the ideas might be carried into a new government after the coming general election (due by Tuesday 17 December 2024).
Navigating care costs with a financial plan
Preparing for the possible cost of care is no simple task. Firstly, the rules surrounding care costs are complex. Secondly, these are currently under review and may be subject to change. A third complicating factor is that local authorities do not commission care at consistent prices, so those with similar needs may progress to a potential “cap” at different rates (e.g. depending on where you live in the country).
It helps to remind yourself of the basics regarding care costs. You should never face a situation where you (a UK resident) are too impoverished to receive care. In 2021/22, your local council should fund your care costs if your savings and assets fall under £23,250 (for those living in England). Bear in mind, however, that it is unwise to rid yourself of assets to avoid (or reduce) your care costs. This is likely to be judged as a “deprivation of assets” by the council and lead to a charge as if you still owned the assets. In a worst-case scenario, this could result in someone needing to pay more towards care than they can actually afford.
For many people, the two main concerns pertaining to care costs are 1/. Being able to keep the house, and 2/. Being able to still pass on a meaningful inheritance. Those who plan far ahead will likely have more options to protect these goals, although a financial planner may still be able to assist you). One idea is to build up a dedicated investment portfolio earmarked for potential future care costs. If you do not need care, then you have a nice extra store of wealth to enjoy or pass down to loved ones (although you will need to be careful with inheritance tax). Other ideas include buying a care annuity, or an immediate care annuity, where the income goes directly to the cost of your care (thus freeing it from income tax).
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
