While challenging for us all, 2020 was particularly challenging for the care sector.
The past year has seen increasing demand from those seeking care either in their own home, or in residential accommodation. On top of this, restricted capacity means the cost of care is rising at around 4% annually, approximately twice as much as general inflation. Below, Atkins Ferrie Wealth Management considers how those needing care support might be able to fund the costs.
In certain cases, the NHS will cover the full cost of care despite your personal financial situation, however, most will be subject to an affordability assessment. Those with capital (savings and sometimes property) over £23,250 will otherwise need to fully fund their care fees themselves. 45% of care home residents fall into this category.
The average cost of residential care in 2018-19 ranged from £28,028 to £39,988 per annum. In some cases the cost can be considerably higher than this.
There are three main options to fund care fees. The first is cash in the bank. Leave the money on deposit and draw down sufficient capital each month to fund the shortfall required to meet the cost of care. In the short-term this may meet the need, however, over time the capital will likely be severely eroded.
An advantage of this option is that, on death, any leftover funds fall to the estate. However, as the time spent in care increases, so does the chance of running out of funds.
The next option is investments. This option involves investing a proportion of capital in assets such as Investment Bonds and Equities. The objective is to achieve a greater rate of return than if left in the bank, thus slowing the rate at which the capital is eroded. However, investments can go down as well as up so, whilst higher returns are possible, so too are lower returns.
Generally speaking, the more risk the person has to take to achieve the necessary return, the higher the level of volatility they are likely to have to face.
The third option is to consider Immediate Care Plans. These may also be called a ‘Care Fees Annuity’, ‘Immediate Needs Annuity’ or ‘Immediate Needs Plan’. Essentially a plan that pays out a guaranteed income for life to help cover the cost of care, either in the client’s own home or in residential care, in exchange for a one-off lump-sum payment.
The premium is calculated based on age, health, estimated life expectancy, and the amount of benefit (the cost of care to be covered) that is required. Once an investment has been made there is no cash value and no cash value on death. However, for an additional sum, some capital protection may be provided.
The plan is portable which means should there be the need to move to another care home a new contract will be set up with the new care provider and payments can be made to them.
In addition to the above, consideration may also be given to: Equity Release for those who own their own homes, but do not wish to sell; Enhanced Annuities for those in particularly poor health, seeking a guaranteed income; letting their former home for those willing to, who understand the tax implications in doing so, and would generate sufficient rental income to cover care costs; a Deferred Payment Agreement where the local authority secures the cost of care against the value of your home to be repaid on sale, if your home can support the loan.
Care fee planning is a complex area with many interlinked issues. If you would like to discuss your options, please call the advisers at Atkins Ferrie Wealth Management on 01872 306422 to book your free initial consultation.