With more people living longer in the UK, it’s becoming increasingly difficult to pay for rapidly-rising care home fees. This means it’s vital to begin planning a suitable long-term strategy as early as possible, to help you cover the cost of care in later life.
According to Care Home UK, the average weekly cost of living in a residential care home is now £704. In other words, residential care now costs an average of £36,608 per year. For those requiring more round-the-clock nursing care the costs are even greater, averaging £888 per week, or £46,176 per year.
Of course, those numbers are the UK average, meaning that the fees someone can expect to pay for care in London and the Southeast of England will be significantly higher.
Anyone with savings or assets worth more than £23,250 can expect to pay for their own care costs
Who pays the cost of care?
While healthcare is provided free by the NHS, the government expects people to contribute towards their own social care in later life.
Social care is ‘means-tested’, and according to the NHS, anyone with savings or assets worth more than £23,250 (or who owns their own property) can expect to pay for their own care costs. Right now, roughly half of care home residents pay for their care themselves (‘self-funders’), while the remainder have their care paid for by their local authority.
How do people pay for care?
Most people expect to pay for care by using their pension, savings and investments – or income generated by other assets, such as rental properties. But this may not be the right option to suit your personal needs and circumstances. This is especially true at a time when rising inflation means cashing in your investments to pay an income means your money is likely to be worth less with each passing year.
Long term care annuities
Another route is to buy an insurance policy, designed specifically to help pay future care home costs. These policies are also known as either an ‘immediate needs annuity’ or ‘deferred annuity’, depending on the specific needs of the policyholder.
With both types, you agree to use a lump sum to buy an annuity that will immediately begin to pay out a regular income for the remainder of your lifetime. This income can then be used to pay for care costs. Anyone in poor health can expect to pay less for their annuity, as they will need to pay for care for a shorter period than someone in good health.
No one should be left with the fear of running out of money needed for care during their later years
Here’s a little more detail on each one:
Immediate needs annuities
As the name suggests, an immediate needs annuity is usually considered the best option if the individual has immediate needs, such as health issues – or they are already receiving care at home or in a care home.
But they also come with a few drawbacks. For example, they can be costly to arrange, and should the policyholder die shortly after taking out the policy, there’s usually no way for the remainder of the capital to be returned to the policyholder’s estate.
Deferred annuities
A deferred annuity is similar to the above, as you pay a lump sum in order to receive regular annuity payments in the future. However, with a deferred annuity you won’t receive those payments immediately; instead you can specify when to receive them (usually up to five years after your investment). The longer the deferred period, the lower the cost of the policy.
While a deferred annuity usually works out cheaper than an immediate needs annuity, you still have to make a lump sum payment upfront. But perhaps the biggest downside is that if you need to pay care fees earlier than you expect to, you’ll have to cover those costs until the deferred annuity income begins. This could leave you severely out of pocket until your annuity starts.
What other options are available?
While some people find that a long-term care annuity is the right solution for their needs, there are other ways to fund care fees over the long term. For example, you might consider an investment strategy that keeps your money invested, and from which regular amounts are paid out to cover care costs when required.
Most people find this a more flexible approach, as it gives their retirement pot the chance to grow while it’s not needed. An added benefit is that, on death, the remaining capital still forms part of the deceased’s estate, and can therefore be left to beneficiaries. A financial planner can help you make the right choices here, and advise you on ways in which you may be able to reduce a potential inheritance tax (IHT) bill for those left behind.
A financial planner can help create a care plan for you
Planning for care home fees can be complicated and costly, which is why it’s a good idea to talk to your Amber River independent financial planner. We can help by creating an investment strategy that takes into account the monthly costs of care, and make sure these costs are covered for as long as needed.
No one should be left with the fear of running out of money later in life. With careful planning that considers your personal care needs, we can help to structure your finances while giving you some much-needed peace of mind.
Amber River can help you plan for your retirement
If you’re just beginning your career and want to start putting money aside, or you already have a retirement pot but want to make sure you’re on track to achieve your dreams, we can help.
Get in touch
To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.
Disclaimer:
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK also have an impact on tax treatment.
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