Dependable Dads and care home fees
11 July, 2017
This useful article by (the youthful) Dependable Dad and para planner Richard Allum spells out some of the key things to think about.
If you’re a Dependable Dad you’ll know that money is likely to be flowing out both ways to the generation below and possibly the one above. You’re stuck in the middle and wondering how it’s all going to be paid for as well as looking after your own savings and retirement planning at the same time.
Most people are living longer than ever before in the UK thanks to better working conditions, accessible health care, medical science and better lifestyles (ahem!). This all sounds like good news, after all, who wouldn’t want to live long enough to get a telegram from the Queen, or does she send an email or selfie these days?
But, and there’s always a but, in many cases living longer can mean losing your independence and needing some kind of social or nursing care.
This can be a very worrying time for your loved one, be it your mum, dad or other relative that may be looking to you for support and reassurance. Before we get on to the inevitable topic of money, let’s put ourselves in their shoes for a minute.
As you go through life your feelings and emotions about money tend to change. Having worked hard for many years, and probably saving as much as you can, worrying about money is the last thing people need. Security and comfort become a priority and, for many, being a ‘burden’ on their family and friends is something they dread. Although we will be talking a lot about money, it’s important to realise that it’s not just about the cash and you may want to think about:
Who will care for them?
What will they do?
How will they do it?
Let’s have a look at some facts about care fees:
More than 400,000 people live in residential care homes with a similar amount receiving care at home.
• The number of people needing long term care is expected to increase by 37% in the UK by 2025.
• Almost 1 in 5 Brits are expecting to pay care fees for an elderly relative.
• Up to 40,000 people a year are forced to sell their homes because of care bills.
• The average annual cost of residential care is £30,496 although 40% still believe living in a care home costs less than £25,000 a year. Nursing care is more expensive with the average costing £39,520 per year (a typical pensioner’s income is £16,848).
• 38% of over 45’s say they have had some experience looking into or discussing long term care options either for family or with friends.
As well as location, the cost will vary based on having your own room or sharing with a stranger, access to a garden and other quite important things.
Anyone in England with capital (that’s savings and property) worth more than £23,250 will get no help towards their care fees. Anyone with capital of less than £14,250 receives free long term care but this will usually be in the cheapest homes unless someone is prepared to cover the cost of more expensive accommodation.
Just 6% of people have made some financial plans to meet care costs which means that 94% should’ve been prepared but won’t be. There are plenty of views on who should pay. The majority of over 45’s (that includes you, Dependable Dad) believe people who can should use their own savings or sell their home to meet these costs. This of course could mean that a sizable chunk of any inheritance goes on care costs which could shine a different light on things. Let’s take a look at some of the options available to you and your loved one.
All in this together
In days gone by, older people received support from their family potentially by moving in with a son, daughter or other willing relative. Society has changed a bit but this is still a common solution. It’s estimated that £132 billion worth of care each year is provided by ‘unpaid carers’ in the UK with a large proportion received and provided by the older generation. Could your family care for a relative and would your home be suitable? Would someone have to give up paid work to take on the role of carer? Would you home need adapting or extended? If so, what would it cost and who pays?
72% of older people do not want their children to have to take care of them but they do want to live near their family if they need to go into care. Being independent and not being a burden features very highly when discussing care.
Use the home
If an elderly relatively needs to go into care, their home could be sold and the proceeds used to meet the costs. This may not be possible though if they are not single; what happens to their partner? There could also be emotional issues about seeing the ‘family home’ being sold. Many equity release mortgages need repaying if the recipient goes into care and would not be suitable.
An equity release mortgage could be taken out to provide cash without having to sell the house. Any mortgage will have interest to pay but this is often rolled up until the house is sold. This does mean that there are no monthly payments but could lead to a nasty surprise when the loan has increased substantially in the future, possibly taking all the remaining equity to pay it off.
Costs could be paid from savings, investments, and pension funds where available. The main advantage is that you only pay for what you need, when you need it. This does keep control of costs and access to the money, unlike an insurance plan, but does carry the big risk that the money runs out. If the elderly person lives longer than expected and the cost of care increases, there may not be enough money left. This could mean other family members contributing or having to move to a cheaper or even free care home. This could be very worrying for your relative and happen at the worst possible time when they are at their most vulnerable.
Long term care fees plans are effectively an insurance policy; you pay a large amount of money up front and the insurance company guarantees to pay the fees however long they need to be paid for. The big advantage is the certainty that costs will be met; there’s no need to worry and that can be a huge relief to all concerned.
The potential downside is paying a large amount of money up front! Where will it come from? What happens if mum or dad dies shortly after taking out the policy? Some companies will provide additional insurance that means some of the lump sum can be paid out if the relative dies shortly after the policy starts. This does increase the cost and could mean that using savings looks a better option.
The main insurance companies in this market are Just (http://www.wearejust.co.uk/) and Friends Life (https://advisers.friendslife.co.uk/products/lifetime-care/); both large and well known by advisers specializing in this area.
What to do next?
If you or your relatives can start to plan before care is need – great. If you one of the rest of us 94% that have no plans in place you need to sit down and carefully consider the options and work out what’s best for you and your loved one. This is a potentially complicated topic and you could speak to:
A suitable qualified financial adviser, ideally a member of the Society of Later Life Advisers (https://societyoflaterlifeadvisers.co.uk/) (SOLLA)
Citizens Advice Bureau
Your local authority
Care of Older People 2014/15 Lang & Buisson
LV= Liverpool Victoria
Department of Health 2012