Most people do not plan how they would fund the cost of their support in older age and that can land them in financial trouble. Dan Parton reports.

In this article:

  • Pay your own way
  • Support plans
  • Take professional advice

Pay your own way

When 84-year-old Robert Kidd suffered a perforated bowel and needed to move into residential care as a result, he hoped the state would provide his care for free. But he was to be disappointed.

Robert was told that because he had assets of more than £23,250 – mostly tied up in his house – he would have to pay his own fees.

As Robert’s pensions did not cover his monthly care home charges, he believed his only option was to sell his home, which he was reluctant to do because he had planned to leave to his family.

He is not alone; it is estimated that about 70,000 people per year sell their house to pay for residential care.

Yet despite stories like this, many people in the UK still have no plans to put aside money to fund their social care in older age.

It is understandable why - most people live in hope that they won’t ever need care and so don't make plans.

For many people care options – and the costs of them – are only considered once they or a loved one is in a crisis. And, for many, what they find out comes as a shock. Several surveys in recent years have shown that most people imagine care will be provided free when they need it, just like it would be in a hospital – but this is not the case.

Indeed, many people find they have to pay for their care. Under the current means-testing system, those in England and Northern Ireland with assets of more than £23,250, including property, will have to pay for their care. In Wales, the threshold is £23,000. The rules in Scotland are different.

Moreover, care services are not cheap. A place in a care home now costs on average more than £23,000 per year – about £442 per week – and some £32,000 for a nursing home, according to market intelligence provider Laing & Buisson.

Likewise, domiciliary care can be costly. Hourly rates can vary markedly, depending on where you live and how specialised the care required is, but in general it costs from about £10 per hour.

Many people find their savings are quickly swallowed up by care fees and some believe that selling their house is the only option to continue paying for care. But this is not the case and with a little planning the burden of care fees can be mitigated and older people can still pass on an inheritance to their children.

Jeremy Davies, managing director of Symponia, an independent care fees planning adviser, contends that there are several financial products that older people can purchase to help pay for care, such as immediate care plans (ICPs) and impaired life annuities. “That’s about as near as anyone can get to guaranteeing they can afford to pay for their care fees for the rest of their lives,” Jeremy says.

Support plans

An ICP is a type of annuity that provides a guaranteed income for life in exchange for a lump-sum investment.

These are purchased when a person already needs care. The difference between an ICP and a standard annuity is that it is based on life expectancy; the older and frailer someone is the better terms they are likely to get.

An ICP pays out monthly until the person no longer needs care, which is usually when they die.

The risk is that if the person taking out the plan dies earlier than expected, their family does not receive any money back, although some policies do offer an option to safeguard the capital in the event of early death. But on the other hand if the person exceeds their life expectancy, the insurer continues to pay out.

Elsewhere, for people suffering from certain serious medical conditions such as cancer, heart disease or strokes, an impaired life annuity can help to fund care costs.

With the reduced life expectancy these conditions bring with them, insurers are able to pay a higher level of income compared with a standard annuity.

But Jeremy is quick to point out that these are not a panacea and other products should be considered.

“Other tools include investments; bringing in line all the funds someone has in banks and building societies, maybe bringing ISAs into a co-ordinated investment vehicle,” he says. “It may be that doing nothing is the right thing.”

Take professional advice

Above all, older people should plan for their care needs and take professional advice before they need services.

Specialist financial advisers can guide you on what your choices are and whether any actions need to be taken in terms of your existing arrangements. The primary questions should be; ‘if I needed care, how much would it cost and have I got sufficient assets?’ From there it is about positioning your assets in a form that can be used to pay for care but could also be passed on to children.

Older people can arrange their finances so they can get the care they need from where they want it and still leave money for their children. The best way to achieve this is to be informed and educated in terms of what the state will and won’t do and what private provision can do and how assets can be best managed to meet all the outcomes that might lie ahead.