Crippling care costs could quickly swallow up your life savings — leaving little left for your loved ones.
And while government funding reforms are overdue, fees are rising, and fewer of us qualify for help from the state.
Official figures show Britons poured £10.9 billion of our own money into privately funded care in a year.
Official figures show Britons poured £10.9 billion of our own money into privately funded care in a year
Fees for nursing care hit an average of £844 a week last year — up from £445 in 1998, according to market intelligence provider LaingBuisson.
Here, we explain how you can prepare for care needs — and ensure the best chance of saving your family’s inheritance.
WHAT WILL THE GOVERNMENT PAY?
Families worst hit are those with property and savings worth more than £23,250 who have to pay the full cost of their care themselves.
Local councils in England contribute if you have more than £14,250, and pay all the fees if you have less. But these thresholds mean almost every homeowner will face fees.
Had the threshold been updated with inflation since it was introduced in 2010, it would now be worth £30,642 — meaning more people are forced to fund their own care.
If you need care, the local council will look at your income, savings and property to work out how much you should contribute.
If you and someone else jointly hold wealth, it will be treated as being divided equally between the two of you. The means test assumes you are claiming all the benefits you are entitled to, so you should ensure you are.
There is no limit on the amount you can pay for care in the course of your lifetime.
This is all despite a 2011 report calling for the system to be overhauled. The Dilnot Commission recommended the wealth threshold be raised to £100,000, and lifetime care bills for an individual capped at £35,000.
Former Prime Minister David Cameron pledged to set the cap at £72,000 in 2020, but the Government abandoned the plans in 2017.
In Wales, the wealth threshold is £40,000; in Scotland it is £27.250. Scottish care fees are free, but you will pay for accommodation costs if in residential care.
I’m saving all I can for the best care
Planning ahead: David Trigg, 65 (pictured on his wedding day with late wife Linda), is making contingencies for future care
Pensioner David Trigg has always been a saver, but started thinking about putting money away for care when his wife Linda died four-and-a-half years ago.
The former British Airways and Eurostar worker, 65, says he is lucky enough to have a number of pensions.
This allows him to maximise his Isa and Self Invested Private Pension (Sipp) contributions each year to build a pot he will not touch until he needs it for care.
This year’s Isa savings allowance is £20,000 and, as he no longer works, David can also pay £2,880 per tax year into his Sipp, and HMRC will add £720 in tax relief.
David says he hopes his savings strategy will keep him out of a poor quality care home. His 99-year-old aunt is in a good home which costs more than £1,000 a week.
And while the state pays some, or all, of the care home costs if you have assets below £23,250 in England, David says you cannot rely on the promise of government funding.
He invests his allowances in high-income investment trusts with AJ Bell and the Share Centre which he says offer an annual return of at least four figures.
He does not have an end sum in mind, but will continue saving in this way as ‘you never know when you are going to go’.
David, who has no children, is also confident he could get £2,000 a month renting his home, a 1930s extended three-bedroom property in Twickenham, South-West London.
And David says his niece and nephew, to whom he has given power of attorney, could organise this on his behalf if he is unable to do it himself. He adds: ‘Care costs are only going to go up. I would suggest that people start saving as soon as they can.’
THE COUNCIL HELPS… BUT IS IT ENOUGH?
Many councils cap contributions — perhaps at prices charged by the cheapest care home in the area.
And if the authority pays for your care, it will decide which home you go to. So you might be forced to ‘top up’ care fees by hundreds of pounds a week.
Also, the medical threshold to qualify for care in the first place is getting higher, experts warn.
Former pensions minister Baroness Altmann says: ‘Government and councils have no pre-funding for social care, the money has to be found at the point of need and if funds are inadequate, as they have been, then councils cut eligibility and ration care more severely.’
Charity Age UK regularly hears from people who face a long waiting list to be assessed.
WILL I HAVE TO SELL MY HOME?
The value of your home is not considered in your means test if you, your spouse, or a dependent, is living there.
This rule lifts the care fee burden on many families when a relative has to go into care. But many people who live alone without savings could have to use their home to cover the cost.
Many people who live alone without savings could have to use their home to cover the cost of care
You can delay paying your care bill with a Deferred Payment Agreement — your property is collateral. This deal means the local authority recovers costs (plus interest) when you die and your home is sold.
You may be tempted to gift your home to family or place it in a trust to protect it from care costs or inheritance tax.
But unless this is done long before care costs are a consideration, the authority could view it as a deliberate ‘deprivation of assets’ and refuse funding.
Chartered financial planner Nick Onslow, of Russell Ulyatt, says: ‘It comes down to intention: Did you reduce your assets to avoid care fees?
And I am not aware of a hard-and-fast rule of time. I believe it could be challenged as far back as it needs to be.’
If you live alone and have savings of less than £23,250, then the local authority will give you 12 weeks of free care before it uses the value of your home in the means test.
DOES IT MATTER WHERE I LIVE?
Property prices now vary hugely — the average house price in the North East (£123,046) is much less than in London (£463,283).
And the cost of basic residential care also differs by £11,180 a year. The lowest average weekly charges in the North West stand at £523 and the highest in the South East at £738. Full-time nursing care will cost substantially more.
So Londoners forced to sell up could find their property wealth pays for care over a 12-year period, while those in the North East may only fund four years of care.
A STEADY INCOME FROM RENTING OUT?
Renting your home while in care can provide a steady income stream, and it can help keep the property in your family. Your tenants will pay the council tax and utility bills, and you also benefit from potential rises in property value.
However, being a landlord brings responsibilities and you might have to deal with repairs, unpaid rent or letting agent fees. There also may be times when you have no tenants and so no rental income.
IS EQUITY RELEASE A GOOD IDEA?
Equity release allows you to withdraw up to 50 per cent of the value of your home if you are 55 or older and your home is worth £70,000 or more.
Equity-release loans have high compound interest payments meaning each month the interest payable is added to the debt, and the following month you are charged interest on top of that
You could put this towards care fees. You need not make any repayments until you die, or when the house becomes empty because the last surviving borrower has moved into long-term care. Then, the house must be sold to repay the debt.
However, equity-release loans have high compound interest payments. This means that each month the interest payable is added to the debt, and the following month you are charged interest on top of that.
Equity release loans also have hefty early repayment charges that eat away at your family’s inheritance. The average equity-release interest rate in June was 4.99 per cent, according to analysts Moneyfacts.
HOW SHOULD I PREPARE?
We spend an average of 16-19 years in failing health, according to Fidelity’s Modern Life report. But a quarter of us haven’t thought about saving to pay for long-term care.
Tom Selby, a senior analyst at AJ Bell, says: ‘While saving for care fees is something most people don’t want to consider, support from the state is extremely limited.
‘And while you may never need to use such a fund to pay for care, having a pot of money in place for this possibility is sensible planning.’
If you are a long way off needing care, saving into an Isa could generate a sizeable personal care fund. But you are restricted to putting away £20,000 a year.
Over a ten-year period, someone saving £420 a month into a stocks and shares Isa, with a 5 per cent annual growth, could end up with a pot worth £66,000, roughly enough to pay for basic residential care for two years.
If you are a long way off needing care, saving into an Isa could generate a sizeable personal care fund. But you are restricted to putting away £20,000 a year
A £570-a-month contribution could generate a fund worth £90,000 — enough to cover two years of residential care with nursing.
Alternatively, you could save more into your pension pot. You get tax relief on the money you put in, you may get an employer contribution if you are still at work, and you can take out a quarter completely tax-free at any point after the age of 55.
You are also more likely to get a better rate of growth than if it was in a bank.
You can also access the money in your pension pot via a drawdown plan and use this income to pay for care fees.
If you die without needing to pay for care, then a pension pot or an Isa can be passed on to your family. A pension will also not generally count towards your estate for inheritance tax purposes.
Steve Webb, director of policy at Royal London, says: ‘Future care costs are unpredictable.
Some of us will end our life with years in a care home and bills running into six figures, while others will go quickly and have negligible care costs.’
Those nearing retirement with significant savings can also invest the capital to generate an income to pay for care. Your investment portfolio needs careful structuring, so professional advice is crucial.
CAN I BUY CARE INSURANCE?
It is possible to purchase insurance that will cover care fees for the rest of your life in exchange for a one-off lump sum payment.
The policy is known as an immediate needs annuity or immediate care plan, and can be used to top up your income to pay for fees.
Like a standard annuity taken to cover the cost of living in retirement, payments can be set to provide a level benefit each month, or can be linked to rise with inflation.
To qualify, you must be medically assessed as needing care with a restricted life expectancy. Just three companies are offering these annuities — Aviva, Just, and Legal & General.
David Pulfer, of Parker Castle, advises clients to build enough capital to cover the shortfall in care fees after their income has been taken in to account.
Lynn Healy, an independent financial adviser at Ascot Lloyd, estimates a typical care annuity paying fees of £10,000 a year would cost around £130,000 at age 70.
At 85, she says, the cost would fall to £50,000. She adds: ‘It is not for everyone, but it gives peace of mind that care home fees are being met.’
Byron Williams, chartered financial planner at advice firm Chase de Vere, adds: ‘Where the annuity payments are made directly to the care provider, these are tax-free. It gives a degree of certainty and can help preserve other assets.’
THE COST OF DEMENTIA
The Mail is calling for an end to the dementia care crisis, including an end to the ‘double subsidy’ — where care homes charge a higher rate for private residents than they charge councils to look after patients with no savings.
There is no insurance specifically marketed at potential dementia sufferers. But they can insure against the future with an immediate care plan, as long as they are deemed incapable and in need of care.
Suffering with dementia can cause many problems, such as care costs, but it can impact on families unable to look after their loved ones’ affairs because no Lasting Power of Attorney is in place.
This legal document allows you to give a family member or trusted adviser power to make decisions about finances and healthcare when you no longer have the capacity.
It is also worth making sure now that your will is up to date.
WHAT ABOUT CARE IN MY OWN HOME?
If you need care visits at home, your local council will only consider your income and savings (not the value of your home) when determining if you should pay for them.
Costs for home care average around £15 per hour.
If your income, including pension and annuities, exceeds £23,250 you will have to pay for the visits yourself. The means test also takes into account that you need sufficient funds for food and bills.
If you have more than £14,250, you will have to pay some costs. If you have any less, the council will pay all fees.
If you are over 65 and need help at home, you should claim Attendance Allowance. This benefit could provide you up to £85.60 a week.
You could get a Personal Independence Payment of up to £87.65 a week if you need help with daily activities.
If you have long-term complex health needs, you could qualify for free social care under the NHS continuing healthcare.
A list of accredited care fees specialists can be found at: societyoflaterlifeadvisers.co.uk.
Work out care costs using the online calculator on the Which? website.