One of the most stressful areas when it comes to meeting the costs of care, especially care home fees, is working out how you will pay for it. For many, they are shocked to find that costs can easily be in excess of £100,000.
We are often asked the question “How to pay for elderly care”. Therefore, in this article, we share the 12 ways you can fund your care.
Many people are also surprised to learn that there is little, or any, financial support available from the Local Authority and they are therefore responsible for paying for all the care themselves.
Many people also massively underestimate the costs of care, and in particular are shocked at the cost of paying for elderly care, particularly care homes and paying for care at home.
The care cost calculators will help you better estimate how much money you will need when paying for care at home or if you need to go into a care home.
Paying for elderly care – 12 options available to you
Local Authority Funding
Long Term Care Insurance
Deferred Payment Scheme with your local council
Income from Investments
NHS Continued Healthcare Funding
Third Party Top-Ups
Paying for care at home or a care home
Before we look at the options, here is a useful video that talks about paying for care at home and in care homes.
How much does elderly care cost?
One of the first things that you need to think about is how much you expect care for you or a loved one to cost.
The cost of care will depend on a number of things including:
Who pays for the care
An individual’s care and support needs, including accommodation, meals, health care, heating and lighting, laundry, and so on
The care provider, whether residential or home care
The current demand for placement at a particular care home
The Care Quality Commission rating of the care provider
Whether you have to pay for financial advice on the best ways to pay
What support you get from your local council
Who Pays For The Care Costs?
When seeking care for yourself or for a loved one, it’s important to be certain about costs and affordability, and fully understand what the state provides.
In the UK, there’s a national standard for charging care home fees and determining who’s responsible for paying.
Generally, there are two threshold limits: the upper threshold and the lower threshold.
If the financial assessment, or means test, shows that an individual’s capital is above the upper threshold, then they’ll be expected to cater for their social care. But if the financial assessment, or means test, shows that you are in the lower threshold, you’ll be means-tested to determine how much state help you qualify for.
1. How much savings can you have before you have to pay for care? Local Authority Funding
One of the most regular questions we get asked is “how much savings can you have before you have to pay for care?”.
The answer is that if it’s determined that you need care services, either at home or at a care home, and your capital is below £23,250 in England, or £25,250 in Scotland, or £23,750 in Wales, you’ll be eligible for financial support from your local council.
People in this bracket may still have to contribute towards the cost of care though. You are only entitled to maximum support if your capital is below £14,250. Even so, you’ll still contribute your income less the £23.90 per week that should be retained for personal expenses.
The financial assessment is based on the financial details of the one receiving care and support. This means that couples are treated as individuals and the one needing social care is responsible for paying for care for the elderly in a care home if you have a partner.
The assessment takes into account your income, savings, and the value of your property if you are going into a care home.
Approximately 25% of the millions of people who need adult social care actually qualify for state help in meeting the costs of care.
If your capital is over £23,250, you must pay full costs, whether that be home care or for residential care home fees. This is what is referred to as self-funding. Those receiving state help and have their capital between £14,250 and £23,250 may still be required to dip into their pockets to contribute towards the cost.
Using a care annuity, or an immediate care annuity as it is sometimes called, is a simple and tax-effective means of paying for elderly care in the home and in a nursing home.
It’s a type of insurance policy that provides a guaranteed regular income for life to fund your care in exchange for an upfront lump-sum payment, from you to the insurance provider.
The amount of money you pay upfront will depend on your age, health and life expectancy, the amount of income you need, and the current annuity rates. Be sure to include a capital protection clause, which allows one to get some of the lump sum payment back if the care period turns out to be shorter.
The payment from the insurer is also tax-free if it is paid directly to the care provider.
Here is a short video explaining how a care annuity works.
Increasingly in the UK, we are seeing insurers start to offer long term care insurance.
Long term care insurance is useful as it provides the money you need if you have to fund care for either yourself or a loved one. Long term care insurance will typically cover the cost of assistance for those who need help to perform the basic activities of daily life such as getting out of bed, dressing, washing and going to the toilet.
In addition, this type of care insurance allows you to protect yourself against diseases such as dementia and Parkinsons. If someone does get these, the insurance will cover the costs of care.
5 – Using Rental Income
If you are fortunate enough to not have to sell your house, then renting your home out, if you move to a residential care home could be a viable option.
This is a good idea if your family is keen on keeping the property or if a quick sale will bring in less the property’s full value. When renting out your home, factor in periods when the property will be vacant and the ongoing costs of home maintenance.
Income generated from tenants can, therefore, help meet care fees. Note that the income is taxable and you could end up paying capital gain tax if the property is sold. Therefore, using rental income should be an option only if the income generated can cater to any shortfall between income and your care fees. Also, be ready for the ongoing responsibility of being a landlord.
This is when you can access some value of your home whilst you remain living in it. You can use the money for anything, including funding care. Equity release schemes have some risks attached to them, so you should consider these alongside the numerous advantages.
Here is a short video that explains what equity release is and how it works.
7. Using a Deferred Payment Scheme
Here, your local council will pay towards the cost of care –up to a certain amount –for life.
This is where a loan is secured against your home at a fixed interest rate. You’ll have to sign a legal agreement with the local council agreeing to repay the amount owed, any added interests, and any annual administration charges once the home is sold upon death. Using a Deferred Payment scheme is only possible if you meet the following criteria:
Live in or plan on living in a residential care home
You own a home or any other asset that the local council can use as security
Your total capital (excluding your home) is below the upper threshold
You might want to consider renting out your home. The income can be used to pay for your care, thus reducing the local authority’s bill.
Using income from investments is another great way to contribute towards the cost of care.
The first step is to arrange for your current assets to generate a steady income. For instance, if you are moving to a residential care home, you can sell your home and invest the money. Due to potentially adverse market conditions and the volatility of any investment, you can reduce risks by investing in low to medium risk investments such as government bonds or corporate bonds, dividend-paying stocks and ETFs, etc.
It’s a good idea to get financial advice to help you choose suitable long term investments.
9 – Using Savings
The good thing about using savings to fund care is that it’s readily accessible, it’s a low-risk investment, and no fees or charges are involved.
But how much savings can you have before paying for care for the elderly? Any amount of savings can be used to pay for your care, but you should probably consider other funding options if you’re likely to run out of money.
Many people that going in to care are likely to be receiving a pension and this is often what funds care for many.
Paying for care using your pension and income drawdown can be a great option only if you have other assets that can comfortably fund your retirement.
To consider this funding option, you should be over 55 years and have pension savings that are already in a drawdown or can be moved into a drawdown product. This is also ideal if you don’t need your pension savings to provide income or fund other costs.
11 – Using NHS Continued Healthcare Funding
If your primary need is a health need, then the NHS paying for care is another option to consider.
The eligibility requirements are, however, quite complicated and change from time to time. Using NHS continued healthcare funding (CHC) is only possible if you have complex ongoing healthcare needs. Also, if you’ve been discharged from a hospital into a care setting, you should be offered an assessment to determine if you qualify for this funding.
Here is a useful video with advice on how CHC funding works.
If you are eligible for support from the local authority, the council will offer a variety of care homes that meet their funding rates. If you choose to live in a more expensive home, then you should consider using a third party top-up to pay up the difference. Note that the money cant be paid from the person needing care.
The person making the payment could be a relative, friend, or a charitable organisation, but as we said, not yourself.
The only time you can top up your own fees is when you enter into a period which the council doesn’t take your property’s value into account or if you have a deferred payment agreement as discussed earlier.
How to Avoid Paying For Care
It can be shocking to realise you need thousands of pounds to pay for care homes. For that reason, it’s only normal that people look for ways to protect their assets.
The biggest concern for many is how to avoid selling their home to pay for care and how much savings can you have before paying for care? The truth is this isn’t a simple question to answer. This text below will explain how you can possibly mitigate care fees rather than wholly avoiding them.
How to avoid paying for care is a very complex area. It’s best to consult a solicitor with expertise and experience in this area.
Ensure you get advice that’s tailored to your individual circumstances and backed up by a written report. Then, take as much time as possible to consider whether and how you wish to proceed. The being said, proper financial planning is the best way to get enough funds to meet care costs.
Here is a short video with advice on avoiding care fees.
What happens when you are self-funding your care and eventually run out of money?
You can seek local authority assistance once your capital reduces below £23,250. Keep in mind that if the care home fees are more than what the local authority is prepared to pay for, the costs will have to be topped up by a third party.
This can be a great idea if the third party can do so in the long term. You can also check to see if the care provider can continue to offer their services at social services funding rates, or better yet, move a less expensive care home.
Funding care is just one piece of the care puzzle. There are several other things to look into when you need care.
Some of them include having a lasting power of attorney, making a will, not forgetting the emotional impact that comes with needing social care or ageing. Hopefully, this guide will help you find quality care at affordable rates.
Another thing to be mindful of is that the government are also looking at something called the social care premium, which will mean those over the age of 40 will be required to save towards their future costs. This is something that you should keep an eye on.