How do you provide for care in later life?


We are increasingly being told that we are an ageing population and that, as a result, there is an increased need for long-term care. The problem this poses is how do you fund the rising cost of care provision in later life?

We now expect to have to pay for care in later life

Many of us can now expect to have to fund some sort of care in the later years of our lives. This makes planning ahead essential, however it can get quite complicated, particularly since the costs depend on several unknown factors: age, health, local funding levels, availability etc.

The average cost of a care home place in the UK is £30,000 a year, and £40,000 if nursing care is required. Even if you opt for care-at-home, two hours a day at approximately £17 per hour could cost almost £12,500 a year.

So, what options do you have to cover this significant cost? Saving from as early as possible is a good solution – investing your money over the longer-term is likely to provide a bigger lump sum that can be used to cover care costs. Selling assets, such as your house, can create the funds you may need. Two of the options you have available for the lump sum generated are purchasing an annuity or investing in an income-producing investment plan.

Care Plans (Immediate Needs Annuities)
  • Requires a lump sum up-front to purchase the annuity.
  • Gives peace of mind because you have a regular income for life.
  • You can cap the cost of your care, potentially safeguarding your remaining capital.
  • Income is tax-free if used for long-term care and is paid directly to the care provider.

But be aware of the drawbacks:

  • Once you have taken out an immediate needs care plan, there is no going back. The plan is in place until you die.
  • If you die, none of the capital will be returned unless you have paid for capital protection which will only return up to 75% of the capital if you die within the first 6 months.
  • There is a large degree of inflexibility with this type of arrangement.
Investment Bonds
  • Lump sum is invested in funds until you either cash the bond in, die, or deplete the money through regular withdrawals.
  • Usually designed for growth over the medium to long term, but can be used to help fund care costs.
  • Investment Bonds are normally treated as life assurance policy.  This means they are excluded from Local Authority means testing to work out how much you will pay toward your care.
  • Money remaining in the bond can be passed on to your beneficiaries when you die.
  • Withdraw up to 5% per annum without any immediate Income Tax Liability
  • Sometimes possible to draw more than 5% without incurring an additional Income Tax charge.

However, there are some things to think about:

  • If you are already in need of care, or expect to need care in the very near future there are rules to overcome avoidance – ‘deliberate deprivation of assets’ will ensure recently invested monies will be taken into account in any means test calculations.
  • If you are already taking withdrawals from your bond when you need care, the Local Authority will probably take this ‘income’ into account when making their calculations.
  • Should your income requirement from this source be more than 5% of the initial investment amount, then consideration of other factors should be taken into account.
  • Bonds do carry some risk. The amount of risk depends on the funds into which you invest. Returns are not always guaranteed and the Bond value could fall and not cover the long-term cost of care. However, you can often include a certain level of capital protection.

Some options for funding long-term care may not be the most suitable for you and some choices cannot be reversed. It is a good idea to talk things through with a suitably qualified professional. If you are concerned about anything raised in this article, get in touch with us to discuss your situation further.