The rising cost of care is putting a strain on families trying to care for their loved ones. Saving money is already difficult, but families with elderly parents now face the burden of rapidly increasing social care costs.
According to the Alzheimer’s Society, dementia care is financially overwhelming, costing families around £51,000 a year for private long-term care. This has added financial stress to the physical and mental challenges of dealing with dementia.
How Much Does Social Care Cost?
Unlike the NHS, long-term or social care is rarely free. Typically, you need to pay for residential care or support at home, and the fees depend on your needs and assets.
Types of Care:
- Residential Care Homes: Provide support with personal care and daily tasks like cleaning and cooking.
- Nursing Homes: Cater to medical needs.
Cost:
- Residential care: Average £1,160 per week
- Nursing home: Average £1,410 per week
- Dementia care: Residential home £1,205 per week, nursing home £1,447 per week
- Home care: Around £20 per hour or £800 per week for a live-in carer, up to £1,600 for extensive care
What Support is Available?
Long-term care can be expensive. Start with a care needs assessment from your local council, followed by a financial assessment.
Financial Assessment:
- Determines how much you’ll pay for care
- Partial or full coverage if assets are below:
– £23,250 in England and Northern Ireland
– £32,750 in Scotland
– £50,000 in Wales
The family home is included in the assessment unless it’s where care is provided or someone else lives there. Giving away assets to reduce costs may be seen as “deliberate deprivation” and will still count in the assessment regardless of how long it’s been since assets were offloaded. Note that gifting and living seven years is relevant for Inheritance Tax, not care costs. For those with significant health needs, NHS continuing healthcare funding might be available after an assessment.
How to Fund Your Social Care
If you have assets exceeding £23,250 and do not qualify for NHS continuing healthcare, you will be funding your own care until your assets drop to levels where local authorities will contribute.
On average, care costs between £60,000 – £75,000 a year, which can deplete assets quickly unless you seek the correct advice. The true cost of care includes the shortfall, the difference between your income and the cost of care. This could be made up from your private pension, state pension, and potentially any widow’s pension. For example, if your income is £25,000 a year and the cost of care is £60,000, this leaves a shortfall of £35,000 to be funded each year from savings, investments, or property proceeds.
Funding Options to Cover the £35,000 Shortfall:
- Do Nothing: All assets are liquidated and kept in the bank, where the shortfall is taken each month until the person dies. Money may accrue at low interest rates until all assets are used to fund care or until local authorities start contributing. Renting out property can generate additional income but requires ongoing maintenance, estate agent fees, potential tenant issues, insurance, and potential Capital Gains Tax (CGT) when sold.
- Immediate Care Annuity: A lump sum is paid based on your age, current annuity rates, health, life expectancy, and income needs. The annuity covers the shortfall between your income and care costs for life. For example, if you are expected to live 8 years at £35,000 a year, the annuity could cost £280,000. The benefit is that all assets over this amount are safeguarded because the annuity covers all future care costs, even if you live beyond 8 years. The downside is the cost of £280,000, and no refund if you die before 8 years.
- Care Plan: A care plan is a short-term, high-yield investment (secured as a first charge with property developers) running from 1-3 years with returns of 8% – 11% per annum, averaging 9% paid quarterly (or rolled over for a new term). For an estate of £600,000 (house £480,000 + £120,000 investment), the property is sold, £50,000 left in the bank, and £550,000 invested in a care plan, producing £50,000 additional income per year (no fees charged). After personal tax on the additional income, the £35,000 care cost shortfall is funded from generated income without affecting capital. There’s no local authority involvement, and capital money falls according to the Will.
Summary
Any shortfall in care costs will come out of the estate of the person requiring care. Ensuring there will be an estate to leave depends on the advice taken at the time. With parents wanting to leave something behind and children wanting parents to have the best care, understanding the options available is crucial.
In an ideal world, funding the care you need, where you want, without eroding capital, removes the concern about funding, allowing all focus to be on the person who needs it most.