The number of people who require social care in later life is rising. What is the best way to prepare for this possibility and how can the costs be met?
Nearly half of people in independent care homes fund it themselves at the same time local authorities are struggling to meet demand for care. How should potential social care costs be factored into a financial plan?
A joint investigation between the Health Foundation and The King’s Fund into funding social care for older people identified several fundamental problems with the current system, including the downward trend in the number of people receiving publicly funded care.
“Faced with shrinking budgets, local authorities are struggling to meet the growing demand for care, linked to increasing complexity in need and an ageing population,” according to the report.
When it comes to funding long-term care, users will generally fall into one of three categories. There are those whose care is funded by the local authority, those who pay for it themselves, and those whose care is funded through a mix of both options.
The difficulty of planning for long-term care
Unsurprisingly, what category a person may find themselves in is largely down to their requirements. Research conducted by healthcare specialist Laingbuisson found that the cost distinction between those who are in independent care homes is very different from those who receive domiciliary care.
In 2016, there were 392,000 people in independent care homes and 44 per cent were covering the costs themselves – up from 40 per cent in 2007. According to recent figures from the United Kingdom Homecare Association, only 25 per cent of people receiving domiciliary care paid for it privately.
The distinction is important because it highlights the difficulty of planning for long-term care. The main problem is that it represents a possibility and not a certainty. Any plan for retirement will require a pension as standard but this is not the case for social and health care. This is further complicated by the fact a person may not know in advance what they should be budgeting for. What is clear is that the onus is increasingly on the individual to meet some or all of the expense.
The sums associated with funding social care are significant. For example, independent charity the Health Foundation revealed that around one in 10 people, at age 65, face future lifetime care costs of more than £100,000. There is additional evidence that even those who have incorporated social care funding into their long term financial plan are at risk of underestimating the requirements.
Covering the costs of care
Research conducted by healthcare specialist Laingbuisson shows that on average, adults in the UK put the cost of residential care at £549 a week. The reality is that a place in a nursing home would cost on average £866 a week although the costs vary according to location and the type of care required. A survey conducted in 2017 by Scottish Widows found that one in four people have no idea how they would cover these costs for themselves or a relative.
There are a number of options available when it comes to paying for care. Ideally, savings and investments will be sufficient to cover the costs. A well-constructed and carefully run portfolio could be used to meet the care cost and it may also help prevent the family home having to be sold in a hurry.
In the event that savings are unlikely to cover the costs, there is the option of taking a Deferred Payment Agreement (DPA) with the local authority. With this arrangement, the local authority will cover the costs of care, but will recoup the costs once property has been sold. This is effectively a loan and the local authority will charge interest. This does open up the option to rent out the property during the course of the DPA in order to offset and reduce the total amount of debt accruing.
Equity release schemes are another means of harnessing the value of a property, in order to pay for care, but without having to immediately sell it. This can be an expensive commitment in the long run however and will not be suitable for everyone.
There is also the option of taking out an immediate care annuity. In exchange for a lump sum, an insurance provider will pay an agreed contribution to the care costs until the policyholder dies which reduces the risk of capital shortfall. This option could also protect the remaining assets, since they may no longer be needed to cover the costs
Social care is a broad term. There are those who will require minimal assistance from a carer and there are those will need the kind of support offered by a nursing home. However, the central premise is a constant - long term social care is only set to become more of a priority with each generation.
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