Frazer Wilson, Senior Wealth Adviser at Canaccord Genuity Wealth Management, offers ten tips for planning effectively for the financial reality of care home fees – one of the biggest wealth management issues of our time.
Social care is set to become one of the biggest issues of our time. The first problem is our ageing population. The post Second World War baby boom gave rise to the biggest demographic group in our society and those babies are now reaching retirement. The Office of National Statistics (ONS) projects that more than 24% of people living in the UK will be 65 plus by 2042, up from 18% in 2016.
So, the pressure on social care provision is reaching endemic proportions – and the majority of us will have to pay for our own
Added to this is increased life expectancy. Centenarians are the fastest growing age group in the UK, and by 2030 there will be over 21,000 100-year olds (ONS figures). Whilst medical advancements are getting people through heart disease and cancer, there is no cure for dementia, which currently affects 850,000 in the UK, projected to be over 1 million by 2025 (the Alzheimer’s Society). So, the pressure on social care provision is reaching endemic proportions – and the majority of us will have to pay for our own.
Soaring care costs
The average cost of a care home in 2018 was £32,344 per annum and when you factor in nursing care and the type of care involved for patients with dementia, that rises to £44,512 – these costs vary significantly from region to region. When you bear in mind that the average stay in a care home is two and a half years – and it is much longer in some cases – there is no dispute that it is a considerable financial outgoing.
Making people aware of the need to make financial provision for later life requirements can be a challenge for the financial planning community – care home planning is the classic “head in the sand” issue. People don’t want to think of themselves in a care home. According to a recent poll by YouGov, out of 2,000 surveyed, only 1% of people were happy with the idea of going into a care home. And who can blame them? With reports of poor service levels and more homes closing, this isn’t surprising.
Ten tips for proactive planning
There are things you can do to help prepare for this eventuality, however. If you’re exploring care options for yourself, a partner, or an elderly parent or relative, here are 10 practical steps on how to make this move a little easier:
1. Live for today: the first rule is not to become too preoccupied with care home provision or worried about the future. There are clear steps you can put in place, so don’t worry. And remember that primarily, life is about living.
2. Talk to those you trust: have a good network around you – maybe family, friends, a trusted adviser – and talk and plan about your wishes for the future and spend time getting your house in order while you can.
Have a good network around you – maybe family, friends, a trusted adviser – and talk and plan about your wishes for the future and spend time getting your house in order while you can.
3. Options: explore and research – know there are options, other than simply living alone or going into a residential or nursing home. It might be living with family, sheltered housing, a retirement village, home sharing, befriending and live-in care, for example. There is anecdotal evidence of elderly friends moving in together and sharing care costs.
4. Government assistance: be aware that as things currently stand, it’s highly unlikely the Government will give you any significant social care assistance, unless you’re very unwell or have very few assets. If you have assets and need social care, then you’re likely to have to use those assets (including your property) to fund care in the future.
5. Paying for care home provision: if there’s a shortfall between the income you have and the cost of care (which will depend on your health at the time), this could be covered by taking a lump sum from your assets to pay the fees as you go, or to buy an Immediate Needs Annuity. Please be aware that care home costs will not necessarily remain fixed – as your needs change, care home costs will rise. If you are considering buying an Immediate Needs Annuity, care home providers are usually happy to negotiate a fixed fee for however long you or your relative will need care.
If there’s a shortfall between the income you have and the cost of care (which will depend on your health at the time), this could be covered by taking a lump sum from your assets to pay the fees as you go, or to buy an Immediate Needs Annuity
The downside is that these annuities can be expensive, but the upside is that you and your family won’t have to worry about how long they might have to cover these costs – it could be two and a half years (the average time spent in care homes) or it could be 10 years. Think of it a bit like a fixed-term mortgage – it just gives you and your family that security.
Discussions around long-term care and inheritance are some of the trickiest conversations families can have, but having them as early as possible will ensure that you have the broadest possible set of options available. Indeed, many attempts to save on Inheritance Tax or to invest specifically for care home fees depend on lead time for their success. Take professional advice well before you need it to maximise the health of your wealth – and your peace of mind.
6. Wills: making sure your will is up-to-date is essential – this sounds like it’s stating the obvious, but too many people in the UK do not have one in place. According to recent research, over half of UK adults do not have a will, so 31 million run the risk of dying intestate. If you don’t have a will, you can’t adequately protect your assets.
7. Lasting Power of Attorney: this is particularly important in the case of dementia sufferers – people are particularly vulnerable at this stage in their lives, so having someone who they trust and know has their best interests at heart is paramount. It is a contract that lets the donor appoint one or more “attorneys” to make decisions on their behalf, so it gives you more control over what happens to you if you have an accident or illness and lack the mental capacity to make your own decisions.
8. Tax efficiency: it makes sense to review the structure of your assets to ensure they are tax effective, if that is important to you. It would be worth bearing in mind that sweeping reform to Inheritance Tax (IHT) has recently been recommended to the Government from the Office of Tax Simplification. If this happens, the plans many families have in place will no longer be IHT efficient, so they will probably need to take remedial action.
Sweeping reform to Inheritance Tax (IHT) has recently been recommended to the Government from the Office of Tax Simplification. If this happens, the plans many families have in place will no longer be IHT efficient, so they will probably need to take remedial action
9. Asking the experts: know that seeking advice from a qualified professional will help. It may cost you, but it will help and it’s always beneficial to seek the advice of an expert.
10. SOLLA: the Society of Later Life Advisers (www.societyoflaterlifeadvisers.co.uk) is a great place to start when you are looking for advisers who understand financial needs in later life – they have a lot of resources to help people and their families, giving them the information they need and helping them find an accredited adviser.
Social care will never be far from the headlines and the situation is set to get worse. Baroness Ros Altmann has previously said that all we need is a really harsh winter for the true extent of the social care crisis to become evident – this would serve to permanently damage the NHS and highlight how stretched our services are.
From a political perspective, it is a difficult issue to handle – saying you are going to hike taxes to fund better social care provision isn’t a vote winner, so parties haven’t wanted to confront it. And because it’s an issue close to a lot of people’s hearts, it needs to be handled sensitively – Theresa May attempted to introduce her “social care proposal” back in 2017, but this quickly became known as the “dementia tax” and people perceived it as the Government being out of touch.
This hot potato isn’t going to cool down any time soon – and it is highly unlikely the Government will step in and announce social care provision for all – so it’s vital that people start to consider their options and putting appropriate financial measures in place
This hot potato isn’t going to cool down any time soon – and it is highly unlikely the Government will step in and announce social care provision for all – so it’s vital that people start to consider their options and putting appropriate financial measures in place. No-one wants to think of themselves in that situation – but given the statistics, you could well be that centenarian in waiting. And when you get there, you would want the appropriate care if you needed it, wouldn’t you?
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