Managing the cost of care for you and your family

As a nation we are living longer. According to the Office for National Statistics (ONS) in 2010 there were 4.9 million people aged over 75, fast forward 10 years and this has grown by a huge 24%, to 6.1 million in 2020. The need, therefore, for some form of care in later life is a real fear among most families which is only growing. This fear comes from not only losing your independence but also losing the legacy you may have planned to pass to your loved ones. 

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A scary fact to add to this concern is the total beds available in care homes as a proportion of the population is decreasing. In 2012 there were 11.3 beds in care homes available per 100 people for those over age 75. Over a 10-year period this has reduced to 9.4 beds per 100 over age 75, this is a 17% decrease.  

In a time where emotions are high as well as stress being overwhelming, the last thing you need to worry about is whether your finances are working in the best way for you so you can afford the care you want or need. Taking the time to appropriately plan for potential care costs in good time will remove this financial worry, allowing you to focus on the health and wellbeing of you and your family.  

In terms of planning for care costs, a good place to start is to understand what these costs may look like. 

Costs of care today 

There is a common misconception that the state will pay for your long-term care. However, in reality only a few people will meet the eligibility criteria which prevents them paying the costs of care themselves.  

In 2023 the average cost for residential care in the UK was is £1,078 per week (£56,056 per year), according to the AgeUK Charity. However, figures will vary significantly depending on your location and the individual circumstances surrounding your care requirements. The first step in your plan would be to research care homes around you and what the typical costs for these are. In most cases, the preferred care home isn’t based on cost but on the distance from family members, so costs can sometimes be unexpectedly high. 

For the current tax year 2023/24, in England, you currently need to be below the savings threshold of £23,250 in savings and/or assets before part of the cost of care will be covered by the state and below £14,250 before all costs are paid (£28,500 in Scotland, £50,000 in Wales and £23,250 in Northern Ireland). This limit includes the value of your home unless you have a spouse or dependent occupying the property. This limit has not been increased to take into account the effects of inflation over the years, therefore fewer individuals are able to benefit from state support each year. 

If your assets are above these limits, then you will need to fund your care costs personally, which may even include your home. 

What is the social care cap? 

It is not all bad news, in 2021 the UK government proposed a price cap on care costs of £86,000, known as the ‘social care cap’, meaning this will be the maximum an individual would pay towards their care costs in their lifetime. The cap was originally due to come into effect as of October 1st, 2023, but has been postponed to October 2025 following Jeremy Hunt’s Autumn statement of 2023. Of course, with the prospect of a changing government on the horizon it’s easy to see that a lot could happen before the postpone social care gap would be implemented. 

Although there is the care cap this only covers the care costs, if you were to be in a residential care home you would still be liable to pay additional costs such as ‘hotel’ costs and luxury costs. 

Building your plan 

If you’ve identified that you will need to pay for care or you’d like to plan for the possibility and you’ve researched to understand what the costs look like in your area, you’re half way there in terms of building your plan. The next step is ensuring your current savings, investments and pensions are working hard and tax efficiently for you to ensure you have the best chances to meet this expense. 

If you are retiring and planning for care costs is important to you, a common mistake most individuals make is holding too much wealth as cash in your bank account. Although cash is very safe and won’t, in theory, go down in value, interest rates on bank accounts have historically been lower than inflation. Therefore, your wealth could be deteriorating in real terms. It is important to have a conversation with a financial adviser to build an initial plan and check if the overall assets you are holding are appropriate. 

If you are much closer to needing care, it is still important to plan the potential expenses out. This will help you to understand how long you would be able to sustain care costs until your wealth is below the threshold for the council to start making contributions. For a short-term solution, your plan may focus around cash accounts, which although may not provide the best return year on year, will provide certainty and peace of mind in the short term. 

If you are in a position where the majority of your wealth is locked away in your home, and you are single and living alone, this will keep you above the threshold. In this situation you will likely need to use this wealth in some way to cover the costs. You will have a few options open to you, which include: 

  • Renting the house out.  

  • Taking out a mortgage or equity release

  • Have the council take the costs from the house (typically on death).  

  • Selling your home outright. 

Each of these options presents potential benefits and drawbacks. For example, selling your home may provide you with a lump sum of cash that you can put towards care costs. However, you may lose your Residence Nil Rate Band (RNRB) on your property, which is an increase to the threshold for inheritance tax. Therefore, it’s important to assess each in turn and discuss with a financial professional.  

At The Private Office we look at your overall financial picture and discuss what is important to you. Our first step is to always build your bespoke financial plan, which will include potential care costs, and how you may be able to pay for these.  

To understand the features and risks of equity release, please ask for a personalised illustration.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning or tax advice.