The shocking cost of care
The cost of care is shocking, as a typical person going into residential care will face total bills of between £50,000 and £93,000 depending on where they live, according to research by Royal London in 2017.
One option to cope with the cost of care is to sell your home.
But research shows that variations in house prices across the UK means people could be paying anything between 18% and 56% of the value of their home to foot the bill, leaving little for them to pass on to their loved ones.
Those living in the North East of England, where the average house price was just under £129,000 in 2017, would be the worst off.
An average stay of 30 months in a residential home would set them back £554 per week, which was 56% of the value of an average home in the area.
While this data was released a few years ago, it does offer some insight into the staggeringly high costs people can face when they need care.
According to academic evidence, 10% of residential home residents have a stay of at least six and a half years.
For people in Wales, Northern Ireland and four English regions ‒ North West, North East, Yorkshire and East Midlands ‒ this length of stay could exceed the value of the average home (in 2017).
Unfortunately, the cost of care has been rising.
Over the last decade, fees in the corporate care market have jumped 40% and hit an average of £837 a week in 2018/19 according to data from Knight Frank’s Care Home Trading Performance Index.
On top of that, 38 councils revealed homecare providers handed back contracts in the first half of 2019, impacting thousands of people, according to the Association of Directors of Adult Social Services (ADASS).
Some of the directors said homecare providers who have either closed, ceased trading or handed back contracts were mainly affected by financial difficulties and issues recruiting staff.
“Our survey highlights the financial and human consequences of under-resourcing and a failure on the part of successive governments to reform the funding system,” said ADASS in its latest Budget Survey.
So, it’s hardly surprising that when someone eventually needs help looking after themselves, they face what can seem like an impossible challenge.
Can the Government help with the cost of care?
The good news is that most people don’t face this alone, because in most cases the Government will pay for at least part of the care.
If you find yourself looking for care for a loved one, it’s essential to understand whether they are entitled to any support from the state.
The local authority will need to carry out a two-step assessment.
The first step will be to decide what kind of care is needed.
The council will then produce a Care Plan, outlining whether they feel the individual needs help in their own home, a residential care home, a nursing home, or a specialist care home for conditions such as dementia.
The second step is to see whether the person needing care passes a means test in order to qualify for financial help.
It’s not a straightforward business, but as a rule of thumb, if their assets come to less than £14,250, the local authority will pay their care home fees.
If they have more than £14,250 but less than £23,250, the local authority will pay part of their fees, and they will have to pay the rest. If they have more than £23,250, the person needing care will have to meet all the costs themselves (£28,000 in Scotland).
The means test also looks at the income of the person needing care (excluding certain disability benefits), to see whether they should have to pay towards their fees from their income.
If the person needing care owns their own home, then unless a spouse, civil partner, partner, a close relative over the age of 60, or a dependent under 16 is living there, the value of the house will be included in the calculation.
Unfortunately, they can’t give away their home ‒ or anything else for that matter ‒ to get around the rules, as the council is likely to decide they’re just trying to cheat the system, so they will do their sums assuming they haven’t actually given the assets away at all.
The Government previously proposed a £72,500 cap on the amount a person could be charged for their own care, but this was scrapped in 2017.
More recently, the Conservatives promised to raise funding for social care by £1 billion, but the Local Government Association has warned councils face a £3.6 billion funding gap in adult social care by 2025.
Once you understand the care needs of your loved one, and the state help available, you are in a position to choose the most appropriate form of care.
If the person needing care qualifies for help from the state, the Care Plan will outline exactly how much they are entitled to, which is also known as the Personal Budget.
If the local authority has assessed that they can be looked after in their own home, this budget can be spent on visits from carers and nurses.
This can either be arranged with the carers, or the money can be paid directly to the person needing care, who can employ their own staff.
While this offers more flexibility, it comes with the responsibility of becoming an employer.
Alternatively, the Care Plan may suggest a move into sheltered housing, with support on-site.
This usually means retirement houses or flats, with a warden either living on site, or visiting at certain parts of the working week.
These properties are available to rent or buy and will usually come with a service charge, while the overall costs will depend on the services you need.
For example, you might pay £700 a month for somewhere with limited services and communal spaces, or over £2,000 a month for somewhere with all food and bills included, and many communal activities.
If you need more support than this, the next option is a residential home, where you can receive assistance with personal care, including washing, dressing and taking medication.
If your medical needs are more complex, and you need care from qualified nursing staff, then the next choice is a nursing home.
In some cases, homes will offer both residential and nursing care, so as your needs evolve, you don’t have to move.
Finally, for those with dementia, there are specialist homes designed to make them feel comfortable and safe.
If you require nursing care, then regardless of whether you qualify for any other help, you may be entitled to the NHS Nursing Care Contribution.
You may also be able to get some of your care, including things like continence supplies, paid for by the NHS.
How to pay for the cost of care
If the person needing care has to pay for it themselves, the most suitable way to find the money will depend partly on the kind of help they need.
If they need help in their own home, they can downsize by selling the family home and moving into somewhere smaller and cheaper.
This will free up a lump sum they can spend on care. It will also allow them to choose somewhere ideally suited to their needs – without excessive maintenance and running costs.
If the person needing care is determined to stay in the family home, they could consider equity release.
The most common type is a lifetime mortgage, which lets a homeowner borrow money against the value of their home.
Interest will roll up and needs to be repaid along with the initial sum when the property is sold (or after the person needing care passes away).
The advantage of this approach is that they can continue living in their home but will have a lump sum to spend on care.
But there are some downsides to consider.
Firstly, if there’s a likelihood that they will need to move into residential care soon, this may not be a cost-effective solution, as there are a number of upfront fees payable, including valuation, legal, and arrangement fees.
It’s not worth spending all this money if they will have to sell the property in a matter of months anyway.
This isn’t the only cost associated with equity release of course, as interest will roll up and eventually will need to be repaid.
In some cases, the interest can match the lump sum initially borrowed – or even exceed it.
Most providers are members of the Equity Release Council, which guarantees the amount owed will never exceed the value of the property, but it could still end up eroding a large proportion of the value of the home.
Selling their home
Since 1999, over 330,000 older people have sold their homes to pay for care, according to Independent Age.
It’s an emotive issue as people have spent their lives accumulating assets, so it’s often horribly painful to consider selling the family home to pay for care.
Unfortunately, it’s often the most sensible choice.
With the proceeds of any sale, they can either pay for care out of the lump sum, or consider buying an ‘immediate needs annuity,’ which will pay out a monthly sum either for a fixed period, or for life.
Annuities can reassure the person needing care that they will not run out of cash if they live longer than expected.
On top of this, as the money is paid directly to the care home, income from the annuity is free of tax.
The downside is that if the person needing care dies earlier than expected, they will lose out financially.
Unfortunately, this is not the only factor to consider.
Annuity rates hit its lowest point in the product’s history in September 2019, according to research by Moneyfacts. Despite this, an annuity may still worth be considering if peace of mind is a priority.
Alternatively, the person needing care may be able to take advantage of ‘deferred payment’ from their local council.
This lets anyone whose other assets are below £23,250 borrow money to pay for care against the cost of their home.
Most councils charge interest at around 2%, which is rolled up and repaid ‒ along with the sum borrowed ‒ when the individual dies or sells their home.
If the family can afford it, they may choose to pay the debt and keep the house after their loved one dies. Alternatively, they may sell the property.
If the person needing care has decided to keep their home, then they can also rent it out to help pay the care fees.
But if they have opted for ‘deferred payment,’ then the council would need to agree to this.
The homeowner (or their family) would also face the responsibility of letting and managing the property and dealing financially with any void periods where they cannot find a tenant, but it could be a valuable source of income.
In fact, if they have a substantial property in the right area, they could make enough money from renting the property out to cover the cost of care entirely.
Getting financial advice
Wherever you find the cash to cover the cost of care, it’s not going to be a painless process.
But the good news is that while the cost of care can be astronomical, there are enough options available so that one way or another, the person needing care can pay for the help they need.
In fact, the sheer number of options, and the complexity of many of them, means this may be one of those times in life when it’s worth talking to an independent financial adviser.
They can’t make the process of moving into a home any less of an upheaval, but they should help ensure that they move into the right kind of care – and that they can afford to pay for it for the rest of their life.