As we move into later life, our financial priorities often shift, and funding the cost of long-term care is a common concern. It is not surprising, given the rapid increase in the cost of nursing and residential care over recent years, and the financial impact on those who need to fund care costs.
According to recent figures from Age UK, the average weekly cost for residential care is around £949 per week, whilst full nursing care costs an average of £1,267 per week. There are, however, substantial regional differences, and we have come across situations where weekly costs for both types of care are significantly higher than the average.
Funding decisions
Local authorities have a duty to arrange appropriate levels of care, following an assessment of an individual’s needs. If there are significant health needs, NHS continuing healthcare may be available, which could cover some or all of the care costs; however, if the individual is not eligible for NHS continuing healthcare, and they hold assets greater than £23,250 (including property) they will be expected to make a contribution towards care costs, either in part or in full.
Self-funding care costs can be a daunting proposition, where financial decisions need to be made at a time of stress and worry when an individual is moving into care. Our experience shows that seeking independent financial planning advice can help alleviate these concerns, by helping families, or Attorneys appointed under a Lasting Power of Attorney, consider a range of options and agree an appropriate strategy to meet the ongoing care costs.
Financial assessment
When we first meet clients who potentially have care needs, or are moving into care, we undertake a full assessment of their capital assets, together with their income sources (e.g. pensions, attendance allowance, investment or property income) to work out the shortfall between the cost of care and other essential costs (such as personal care items and spending money) and their income.
It might be the case the individual can readily meet the shortfall between income and care, although this is typically only for those with significant investment, pension, or property rental income. In most instances, there will be a shortfall between the cost of care and income received, which will lead to erosion of capital assets over time. Individuals, or their Attorneys, will, therefore, need to make decisions about how best to deal with cash savings, investments, and property, to help stem the rate of erosion.
Immediate Needs Annuities
One option that can bridge the gap between income and care costs is to use savings, or property sale proceeds, to purchase an immediate needs annuity plan. In exchange for a capital lump sum, an insurance provider will pay a monthly amount direct to the care provider to meet the shortfall between income and care fees.
As insurers underwrite each plan, the single premium payable on purchase is dependent on the age, health, life expectancy, and care needs of the individual. In our experience, the levels of premium payable on such policies can be expensive; however, despite this cost, some may value the certainty that a care fees annuity can bring.
Once an Immediate Needs Annuity policy is in place, there is no return of capital to loved ones in the event of death of the individual in care, unless capital protection insurance is purchased, which comes at an additional cost. It is also important to consider the average life expectancy of an individual who moves into care. According to data from the Office for National Statistics, the average length of stay in care before death of a man aged 85 is around 2.5 years, with a woman of the same age expected to live for another 3.5 years. The purchase of a care fees annuity could, therefore, potentially only pay out for a limited period, leading to returns that offer poor value from the large capital outlay used to purchase the annuity.
Investment options
Building a bespoke investment plan from capital assets, which aims to limit the erosion of capital due to the shortfall between income and expenditure, is often the most appropriate route to take. Factors such as the value of any existing investments held, the tolerance to investment risk accepted and income needs all require consideration, before deciding on an investment strategy. Tax-efficiency and ease of access to funds will also be important considerations.
Cash savings will inevitably have a part to play in any sensible investment arrangement when funding care fees. It is, however, important that cash deposits remain productive and held in a tax-efficient manner.
For larger sums not immediately required to pay for care, other investment options, such as Company Shares, Corporate and Government Bonds and alternative assets, aim to generate superior returns to those available on cash, and help stem the rate of erosion of capital, so that funds held can continue to pay for care provision for an extended period or leave capital to loved ones on death. Keeping an investment strategy under review is also vital, as it is often the case that care needs change over time, and care home fees tend to rise each year in line with, or above, the rate of inflation.
Independent advice
Our experienced advisers can provide independent and unbiased advice on the best way to fund care costs, tailored to an individual’s personal circumstances. We can look across the market at annuity solutions and regularly provide advice on sensible investment strategies to keep funds productive whilst funding care costs. Speak to one of our advisers to discuss how best to pay for the cost of care.
