How much will you need?
First things first, before you think about how you will pay for care, you need to calculate the cost.
Whilst the only way of doing this accurately is to get exact fees from the home of your choice, our Long Term Care Calculator will provide you with an estimate of the likely costs you are facing.
You can use the calculator by clicking here.
If you have assets below the lower limit, the Local Authority will meet the cost of your care. However, if you have assets above the upper limit, it is clear, even with the £72,000 care cap, you could still be left with a hefty bill. Finally, if you have assets between the upper and lower limit, you may have to make a contribution towards the cost of your care.
If you have to pay for some, or all of your care, there are a number of options open to you.
The first thing to do is to calculate how much you will need to pay, next deduct any on-going income which you can use to help meet this cost, for example:
- State Pensions
- Other pension income
- State benefits which will continue
You will then be left with an annual bill, i.e. the costs not covered by your income. It is this amount you will need to fund from your other assets, notwithstanding of course any Local Authority or State assistance.
Seven ways to pay for your care
There are seven ways you could use to pay for your care. However, for most people, the answer lies in a combination of two or three options
1. Savings: If you have savings, perhaps held in a tax-free Cash ISA (Individual Savings Account), you could use the interest you receive to help pay for the cost of your care. Whilst this option carries no risk to your capital, with interest rates currently being so low, you may prefer to consider alternative options which may pay a higher return.
2. Invest to produce an income: One alternative to using the interest from savings accounts is to consider investing, perhaps in a portfolio of funds to match the level of risk you are prepared to take.
Income or capital growth could be taken monthly, quarterly, or annually, to help pay the shortfall in your cost of care. But remember, whilst you would hope to make a better return on your investments than any savings you hold, your capital is at risk and the value could rise as well as fall. If your capital were to fall in value, this could impact your income, or see your capital eroded even quicker if you maintain the same level of income.
3. Immediate Needs Annuity / Care Fees Plan / Care Fees Annuity: When you retired you may have bought an Annuity with your pension fund; this option works in a very similar way.
With an Immediate Needs Annuity, also known as a Care Fees Plan or Care Fees Annuity, you pay a lump sum to an insurance company who guarantee an income for the rest of your life, however long that is, to pay for your care.
The income is guaranteed and can be index linked in line with expected increases in the cost of care. Furthermore, if it is paid directly a CQC Registered Care Provdier or a Local Authoirty, the income is tax-free.
The capital used to buy the plan is immediately outside of your estate for Inheritance Tax purposes, which might be a valuable additional benefit.
A Care Fees Plan is therefore a low risk option and guarantees to continue to pay income until you die. However, if you die sooner than expected you could receive less back than the original capital lump sum, although there are options which can help to offset this risk.
Conversely though, if you suffer from ill health this will be taken into account when you make an application for a Care Fees Plan, which could help reduce the cost. In advance of an Immediate Needs Annuity being arranged, full medical information needs to be provided so an underwriter can provide a guaranteed quotation of what income will be paid from the capital being invested.
4. Selling your home: If you live alone and need residential care, you could consider selling your home, to release capital, which could then be put into a savings account, invested or used to buy an Immediate Needs Annuity.
5. Letting your property: The idea of selling your property might not appeal. Perhaps you feel that prices will rise over the next few years, or you may return to the property at some point in the future. You therefore could consider letting your property and using the income produced to help meet the cost of your care.
Remember though, any rental income you receive will be added to your existing income and then taxed. You will also have to keep the property in a good state of repair and you need to factor in ‘void’ periods to your planning.
6. Equity release: If you have a partner or other financial dependent living with you and you need residential care, selling your home is unlikely to be an option. You therefore could consider using an Equity Release plan to help fund the cost of your care. No interest is paid on a monthly basis, as it is with a traditional mortgage, but it rolls up and is repaid when the house is eventually sold. Using Equity Release is a big step as it could significantly reduce the value of your estate when you die. Careful consideration should be given to all other options before Equity Release is used and you should be careful to ensure you fully understand all the implications of using such a plan.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
Check that this mortgage will meet your needs if you want to move or sell your home or your family to inherit it. If you are in any doubt, seek independent advice.
7. Family assistance: If the options outlined above are insufficient to cover the cost of your care, you could look to your family for help. Whilst this is often seen as a last resort, many children would rather contribute to the cost than see their parents receive substandard care or have to put up with poor accommodation.
The answer for most people when faced with a large bill for their care lies in combining a number of solutions, for example one insurer offers a hybrid scheme, mixing the benefits of equity release with a Care Fees Plan.