Saving for potential care shouldn’t be slipping down priorities

19/07/19
Long Term Care

The cost of care is becoming a big issue among retirees. As we live longer lives, more of us will inevitably need some form of care at some point. However, research worryingly shows that it’s an area that’s slipping down the list of priorities.

Research from the Association of British Insurers (ABI) found that nine out of ten over-65s have no plan to pay for social care, despite around half of all care users having to pay at least a portion of the costs. When asked how they’d pay for care, survey respondents said:

  • State Pension (51%)
  • Selling their home (26%)
  • Insurance (17%)

A lack of planning for future care costs could lead to financial insecurity later in life. It may also limit the type of care and level of services retirees have access to.

Yvonne Braun, Director of Policy, Long-term Savings and Protections at the ABI, said: “The social care system and how it’s funded desperately needs an overhaul. People simply aren’t preparing to pay for their care costs and this needs to change.

“With only one in ten over-65s making provisions to pay for care, the size of the financial time bomb is clear for everyone to see. A major public awareness campaign is essential if we are ever going to get more people making financial plans for care.”

Further research from Just Group highlights it’s a retirement issue that few are engaged in too. In a survey, 88% of people aged over 45 admitted they had not thought about care, planned it or spoken to other family members about the issues. Those aged over 75, were more likely to have taken some planning steps, but still over two-thirds (68%) had not done so.

Despite being an issue that’s featured in the press recently, 17% said they were not interested in the debate about who should pay for care, a figure that has tripled in the past year. Understanding when you’re responsible for care costs is crucial to effectively plan for the future and unexpected costs.

Who pays for care?

There often can be confusion around who pays for care and when state support will be offered. In England, should you need residential care you will be means-tested before the local council will pay the fees.

  • If your assets are over £23,250 you will pay your fees in full
  • If assets are between £14,250 and £23,250 your local council will fund a portion of care, with you making up the rest
  • Where assets are below £14,250, the council will pay for care

As well as assets such as a savings account, property or investments, it’s important to note that income may also be taken into account, including your State Pension. If your eligible income is taken into account, you must be left with an income of £24.90 per week, this is known as your Personal Expenses Allowance.

Where homecare is required, the same thresholds apply for residential care. However, rather than a Personal Expenses Allowance, you benefit from a Minimum Income Guarantee. This is £189.00 per week if you’re single and above the Pension Credit qualifying age.

As a result of these thresholds, most people will likely be required to pay for at least some of their care costs. But how much are these? According to Age UK:

  • A care home place will cost on average £600 a week or £31,200 annually. If a nursing home is needed this can rise to £800 a week (£41,600 annually)
  • Whilst home care services on average will be around £15 per hour. This may not sound a lot, but having just two hours of care per day would amount to a bill of £10,920 each year.

It’s also important to note that costs can vary across the country. As a result, you should look at average costs within your local area when making plans.

How financial planning can improve financial security

When you’re planning your retirement, thinking about care probably isn’t on your mind. However, it should be factored into your overall lifestyle plans and how income would cover potential costs. Failing to consider care at the point of retirement could leave you in a financially vulnerable position or mean that assets you hoped to leave to loved ones are depleted in your later years.

Financial planning can help you visualise the impact care costs could have on your estate under different scenarios. This allows you to take steps necessary to keep your plans on track. If you’d like to understand how your finances would be affected by care costs, please contact us. We’ll help you create a plan that factors in unexpected costs that may be outside of your control, including care.