How YOU can protect your wealth from a care fees black hole
The Mail’s campaign to end the dementia care cost scandal has sparked a national debate. But for families who need help now. . .
CRIPPLING care costs could quickly swallow up your life savings — leaving little left for your loved ones. And while government funding reforms are overdue, fees are rising and fewer of us qualify for help from the state.
Official figures show Britons poured £10.9billion of our own money into privately funded care in a year. Fees for nursing care hit an average of £844 a week last year — up from £445 in 1998, according to market intelligence provider LaingBuisson.
Here, Money Mail explains how you can prepare for care needs — and ensure the best chance of saving your family’s inheritance.
WHAT WILL THE GOVERNMENT PAY?
MIDDLE-CLASS families are worst hit as those with property and savings worth more than £28,000 in Scotland have to pay the full cost of their care themselves.
Local councils will contribute to your care if you have between £17,500 and £28,000, and will pay all the fees if you have any less.
But these thresholds deny any help to almost everyone who owns a home.
If you need care, the local council will look at your income, savings and property to calculate how much you should contribute.
If you and someone else jointly hold wealth, such as a savings account or shares, it will be treated as divided equally between the two of you. The means test will assume you are claiming all the benefits you are entitled to, so you should ensure that you are.
There is currently no limit on the amount you can pay for care in the course of your lifetime. This is all despite a major report calling for the care funding system to be overhauled back in 2011.
The Dilnot Commission called for the wealth threshold to be raised to £100,000, and a cap on lifetime care bills for an individual to be set at £35,000.
Former PM David Cameron pledged to set the cap at £72,000 in 2020, but the Government abandoned the plans in 2017.
In Wales, the wealth threshold is £40,000. Personal care and nursing care fees in Scotland are free, but you will have to pay for accommodation costs if in residential care.
THE COUNCIL HELPS . . . BUT IS IT ENOUGH?
LOCAL councils in Scotland cap their contributions at a standard rate for each area, so you or your family might be forced to ‘top up’ the care fees by hundreds of pounds a week to find you a preferred placement nearby.
Former pensions minister Ros Altmann says: ‘Government and councils have no pre-funding for social care, the money just has to be found at the point of need and if funds are inadequate, as they have been, then councils cut eligibility and ration care more severely.’
Charity Age UK also says it regularly hears from people told they face a long waiting list to be assessed for care.
WILL I HAVE TO SELL MY HOME?
THE value of your home is not considered in your means test if you, your spouse, or a dependent, live there. This rule lifts the care fee burden on many families when a relative has to go into care. But many people who live alone without savings could have to use their home to cover the cost.
You can delay paying your care bill with a Deferred Payment Agreement — your property is collateral. This deal means the local authority recovers costs (plus interest) when you die and your home is sold.
You may be tempted to gift your home to family or place it in a trust to protect it from care costs or inheritance tax. But unless this is done long before these are a consideration, the authority could view it as deliberate ‘deprivation of assets’ and refuse funding. Chartered financial planner Nick Onslow, of Russell Ulyatt, says: ‘It comes down to intention: Did you reduce your assets to avoid care fees? I’m not aware of a hard-and-fast rule of time. I believe it could be challenged as far back as it needs to be.’
Residents of Scotland with more than £28,000 in assets – including the value of their home– have to pay the full cost of their care.
DOES IT MATTER WHERE I LIVE?
PROPERTY prices now vary hugely across the country.
The average house price in Edinburgh (£295,021) is substantially more than in Glasgow (£184,625). The average house price in NorthEast England (£123,046) is substantially less than in London (£463,283). So those in cities with higher house values forced to sell up could find their property wealth pays for care over a longer period than those elsewhere.
A STEADY INCOME FROM RENTING OUT?
RENTING out your home while you are in care can provide a steady stream of income to cover the fees, and it can help keep the property in your family.
Your tenants will pay the council tax and utility bills, and you also get to benefit from potential increases in property value. However, being a landlord comes with responsibilities and you might have to deal with costly issues such as repairs, unpaid rent or letting agent fees. There also may be times when you have no tenants and so no rental income.
IS EQUITY RELEASE A GOOD IDEA?
EQUITY release allows you to withdraw up to 50 pc of the value of your home if you are 55 or older and your home is worth £70,000 or more.
You could put this towards care fees. You need not make any repayments until you die, or when the house becomes empty because the last surviving borrower has moved into long-term care. Then, the house must be sold to repay the
debt. However, equityrelease loans have high compound interest payments. This means that each month the interest payable is added to the debt, and the following month you are charged interest on top of that.
Equity release loans also have hefty early repayment charges that eat away at your family’s inheritance. The average equity-release interest rate in June was 4.99pc, according to analysts Moneyfacts.
HOW SHOULD I PREPARE?
WE spend an average of 16-19 years in failing health, according to Fidelity’s Modern Life report. But a quarter of us have not thought about saving to pay for care.
Tom Selby, a senior analyst at AJ Bell, says: ‘While saving for care fees is something most people simply don’t want to consider, support from the state at the moment is extremely limited. And while you may never need to use such a fund to pay for care, having a pot of money in place for this possibility is sensible financial planning.’ If you are in good health and a long way off needing care, saving into an Isa could generate a personal care fund. But you are restricted to putting away £20,000 a year.
Over a ten-year period someone saving £570 a month into a stocks and shares Isa, with a 5 per cent annual growth, could end up with a pot worth £90,000, more than enough to pay for residential care for two years.
Alternatively, you could save more into your pension pot. You get tax relief on the money you put in, you may get an employer contribution if you are still at work and you can take out a quarter completely taxfree at any point after age 55.
You are also more likely to get a better rate of growth than if the money was in a bank account. You can also access the money in your pension pot via drawdown and use this money to pay care fees. If you die without needing to pay for care then a pension pot or an Isa can be passed on to your family. A pension will also not generally count towards your estate for inheritance tax purposes. Steve Webb, director of policy at Royal London, says: ‘Future care costs are hugely unpredictable. Some of us will end our life with years in a care home and bills running into six figures, whilst others will go quickly and have negligible care costs.’
Those fast approaching retirement with significant savings can also invest the capital to generate an income to pay for care. Your investment portfolio needs careful structuring, so professional advice is crucial.
CAN I BUY CARE INSURANCE?
IT IS possible to purchase insurance that will cover care fees for the rest of your life in exchange for a one-off lump sum payment.
The policy is known as an immediate needs annuity or immediate care plan, and can be used to top up your income to pay for fees.
Like a standard annuity taken to cover the cost of living in retirement, payments can be set to provide a level benefit each month, or can be linked to rise with inflation. To qualify, you must be medically assessed as needing care with a restricted life expectancy. Just three companies are offering these annuities — Aviva, Just, and Legal & General.
David Pulfer, of Parker Castle, advises clients to build enough capital to cover the shortfall in care fees after their income has been taken in to account.
Lynn Healy, an independent financial adviser at Ascot Lloyd, estimates a typical care annuity paying fees of £10,000 a year would cost around £130,000 at age 70.
At 85, she says, the cost would fall to £50,000. She adds: ‘It is not for everyone, but it gives peace of mind that care home fees are being met.’
Byron Williams, chartered financial planner at advice firm Chase de Vere, adds: ‘Where the annuity payments are made directly to the care provider, these are tax-free. It gives a degree of certainty and can help preserve other assets.’
THE COST OF DEMENTIA
THE Mail is calling for an end to the dementia care crisis, including an end to the ‘double subsidy’ — where care homes charge a higher rate for private residents than they charge councils to look after patients with no savings.
There is no insurance specifically marketed at potential dementia sufferers. But they can insure against the future with an immediate care plan, as long as they are deemed incapable and in need of care.
Suffering with dementia can cause many problems, such as care costs, but it can impact on families unable to look after their loved ones’ affairs because no Lasting Power of Attorney is in place.
This legal document allows you to give a family member or trusted adviser power to make decisions about finances and healthcare when you no longer have the capacity.
It is also worth making sure now that your will is up to date.
WHAT ABOUT HELP IN MY OWN HOME?
LOCAL authorities across Scotland have their own financial assessment processes to determine what people pay towards home care visits.
The same principle as care home funding applies and if a person has sufficient financial resources they are regarded as self-funding.
But a recent report by Alzheimer Scotland found ‘there are 32 different charging financial assessment processes across Scotland’ – a different one in each local authority.
People in Scotland of any age assessed as needing personal care – which includes washing, food preparation and assistance with medication – receive it free. Services such as help with housework, shopping or laundry may be chargeable. If you are over 65 and need help at home because of illness or disability, then you should claim Attendance Allowance. This benefit could provide you up to £85.60 a week if you need help day and night.
You could also get a personal independence payment of up to £87.65 a week if you need help with daily activities or getting around because of a long-term illness or disability. If you have long-term complex health needs you could qualify for free social care under the NHS continuing healthcare.