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When you are no longer able to look after yourself, through permanent conditions such as arthritis, stroke or dementia, you will need help from family or outside agencies, either in your own home or in a residential home. This type of care, known as long term care, needs to be paid for, and it is never too early to think about what your future care needs might be.
The Financial Services Authority webpage on ‘long term care made clear ’ is a good source of general information.
The costs associated with long term care can be quite high, and can also vary significantly depending on where you live and the quality of care you need. You should research the costs of care, including residential and nursing homes, in your own area, as the charges can differ by several thousands of pounds per year. These costs rise faster than retail prices, mainly due to increasing labour costs.
How do I pay for long term care?
This depends on your personal circumstances. You will be expected to pay for your own care from your own assets. So you will be able to choose the care that suits you. However, if you have a low income and relatively small savings you are likely to be entitled to financial support from your local social services (subject to means testing), but you may be restricted in your choice of care.
After retirement most people will have at least their basic state pension to put towards care fees. This can be supplemented by other state benefits (such as attendance allowance, which is not means tested), together with investment and other pension income. The state also provides a top-up payment to cover the costs of some, strictly defined, nursing care (also not means tested).
However, until you qualify for extra financial support from your local social services, you are likely to need an additional income to pay for any shortfall in your care fees. The main ways of obtaining this are:
Savings and investments – These need to be built up well in advance so that they can be used to provide sufficient income when necessary. The income required to pay for long term care can be so large that the capital is soon eroded, if not totally spent. Purchasing an immediate long term care plan can avoid this problem.
Equity release – If you do not have sufficient savings and investments but do own your own home, it is possible to release some of its value, using equity release, to provide a lump sum or an income. The released capital can be used directly for your care or indirectly using an immediate long term care plan.
Pre-funded long term care plans – These are insurance policies, taken out before you need long term care, that pay an income, based on the amount invested and your age and health when the policy was taken out. The policies can be purchased with single or regular premiums. Some policies are linked to an investment bond that provides the capital for the payment of regular insurance premiums.
Few providers are available for these plans because it is very difficult to predict the income required and, consequently, the amount to be invested to generate that income. They are therefore no longer a popular choice.
Immediate long term care plans – These are single premium insurance policies, but they are taken out when you actually need long term care. Like pre-funded plans, these plans pay an income, based on the amount invested, and your age and health when the policy is taken out. The level of income can be fixed or increased in line with inflation or average earnings index.
These plans are particularly suitable if you are concerned that all your capital could be used up but you would like to preserve some for your family.
Long term care provision should be planned carefully as there are many potential problems.
The most obvious problem is an inadequate income for your chosen care. The next problem is the reduction of your estate for your family and beneficiaries. This is particularly important when you use your home to provide a lump sum (equity release).
Therefore, it is always best to involve your family and the beneficiaries of your estate in your planning, so that they are fully aware of your situation and agree with your decisions.
Although many people prefer to make their own provisions for long term care, some prefer to rely on state benefits and object to using any of their own money. In such cases, people try to give away as much of their money as possible before they require long term care. However, local authorities do not treat these cases favourably, and it is possible that they would limit their financial support or even recover the gifted assets.
If it is clear that you have given away assets as part of legitimate inheritance tax planning, without any intention to reduce your estate to qualify earlier for state benefits, then it is unlikely that the local authorities would try to recover them.
If your spouse continues to live in your home, then a local authority will not enforce its sale to help pay for your care.
What should I do now?
Long term care can seem a long way off and therefore not important, but when you need such help it becomes a very high priority and arranging it can be quite distressing. Therefore, it is best to prepare for your possible future care needs sooner rather than later, by seeking an independent review of your financial situation and making appropriate provision.
If you need care now, then you should find out what, if any, state benefits you are entitled to, by contacting your local social services, and check the costs of care in your area. Some general information is available on various websites (see useful links) or, if you would like us to advise you on your particular situation, please contact us.
© John Bramwell 2005-2008
BV Services is Authorised and Regulated by the Financial Services Authority
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