As we get older, many of us will need help looking after ourselves. But what are the options when it comes to paying for long-term care?
Thanks to things like medical advances and changes to our jobs and overall lifestyles, more and more people are living to a ripe old age[i]. Surprisingly though, an aging society doesn't necessarily mean demand for social care will increase. But, analysis by The Health Foundation suggests that those who do need care will have increasingly complex needs.[ii]
Given that care doesn’t come cheap, how should we – both as individuals and as a society – pay for it?
Paying for care home fees
One of the big challenges of care home funding is that we usually have no idea how much we might need. Many of us will face relatively modest costs. For others, especially those who spend years of their later life in residential care, the costs could easily run into the hundreds of thousands.
How you end up paying for care will largely depend on your unique financial circumstances. You might have money set aside or a property which you can sell to free up some cash. There are several other ways to ensure you can pay for your care fees, including equity release.
The government has changed some of the limits to try to make it clearer what you're entitled to (more on that later). And, you could be eligible for certain support from your local council in some circumstances.
All that said, there are a few typical ways to pay for care if you need to enter an assisted living or residential home in later life.
1. State-assisted support
If you have limited wealth, your care home costs are likely to be covered by a state safety net. Nevertheless, how much you qualify for will depend on what part of the UK you live in.
Outside of Scotland, social care support is only available on a means-tested basis, where the amount of income and savings you have impacts your eligibility. It’s also only offered to those with very limited assets and a high level of assessed needs.
There’s also NHS continuing healthcare (CHC)[iii] available for those who need full-time care because they have more complex, long-term health needs. NHS CHC funding isn’t an option for everyone, and you’ll need to be assessed by a team of professionals to see if you pass the criteria.
2. Selling your home to pay for care
For those who live alone and go into residential care later in life, your local authority will factor in the value of your home to calculate how much you might be able to pay towards your costs. This could mean selling your home to pay for care costs, or releasing some of the equity locked in your home using a later life lending product if your partner or loved one needed specialist care.
Don’t want to give up your family home just yet? It’s worth exploring the option of ‘deferred payments’ with your local authority. This is where the council initially pays your care costs and they’re then eventually repaid (with interest) at the end of your period in care when your home is finally sold.
3. Insurance products
In the past, it was possible to buy an insurance product to cover yourself against the potential future costs of care. Sadly, the market for these products has almost disappeared. The one exception is a product that can be bought as you enter residential care that’s known as an ‘immediate needs annuity’.
The way this product works is by handing over a relatively large initial lump sum (which can run into the tens of thousands of pounds) to an insurance company. They will then pay your care costs for as long as you live. Although not cheap, these products do offer peace of mind that your costs will be covered if you do end up requiring a long stay in a care home.
Changing the care funding system
The UK care funding system can be complex but charities like Age UK and Care Funding Guidance can often help signpost the help that’s most suited to your individual needs. The government has also reformed the charging for social care to try to make things clearer and less complicated.
To summarise, from October 2023:
- the point at which you could become eligible for support from your local authority will rise from the current limit of £23,250 to £100,000 of chargeable assets (common chargeable assets include property, land, stocks or shares, or business assets. It doesn’t include savings)[iv]
- the threshold at which people stop paying for their own care has also increased to £20,000 from £14,250. And while you no longer have to contribute to your care from your assets, you might still need to contribute from any income you receive[iv]
- a new £86,000 cap will be applied on the amount anyone in England will need to spend on their personal care over their lifetime.[iv]
The rules in Scotland and Wales are different so it’s important you find the rules that apply to you.
The Association of British Insurers has stressed that individuals need to be able to plan for the long term and have confidence that the system put in place by the government is robust and will remain unchanged for a reasonable amount of time.
As an insurer, we also hope these new rules help because people often don’t plan for care costs. Without some kind of plan, they could find themselves experiencing financial hardship at a time when they’re already distressed about finding care for a loved one or themselves.
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