With the Uk’s ageing population, more people will be living with long-term care needs, but rising life expectancy also brings the challenge of how we fund our future care costs. George Square Financial Management outlines some of the available options for planning for long-term care.
By ‘long-term care’ we mean assistance with day-to-day activities such as washing and dressing or cleaning and cooking. Demand for long-term care is expected to rise, thanks in part to our ageing population and the increasing prevalence of long-term conditions such as dementia.
This makes planning ahead essential, but when it comes to funding later life it can get quite complicated because of how local authorities calculate whether a person needs financial assistance for the cost of residential care.
Financial support for long-term care
The level of funding from the state can vary depending on where you live in the UK. In England, if your savings and assets are above £23,250, you will normally be expected to pay for the full cost of long-term care yourself. Government state benefits can provide some help, but may not be enough or may not pay for the full cost of long-term care.
Long-term care insurance can provide the financial support you need if you have to pay for care assistance for yourself or a loved one. Paying for care in old age is a growing issue.
Planning for long-term care
There are a number of different ways to fund long-term care. These are some of the main options available to people needing to make provision:
Immediate needs annuities – a type of insurance policy that provides a regular income in exchange for an upfront lump sum investment. When used for long-term care, it provides a guaranteed income for life to help pay for care if you have care needs now. Income is tax-free if it is paid directly to the care provider.
Enhanced annuities – You can use your pension to purchase an enhanced annuity (also known as an ‘impaired life annuity’) if you have a health problem, long-term illness, are overweight or if you smoke. People with medical conditions including Parkinson’s disease and Multiple Sclerosis, or who have had a major organ transplant, are likely to be eligible for an enhanced annuity.
Equity release schemes – If you have already paid off (or nearly paid off) your mortgage, an equity release scheme could be an option to consider. However, it is important – and a regulatory requirement – to obtain professional financial advice before committing to an equity release scheme as your individual circumstances need to be assessed. These schemes give you the ability to obtain a cash lump sum as a loan secured on your home, which is why it is essential to make an informed decision and consider the options and alternatives available before going ahead.
Savings and investments – Saving or investing enables you to plan ahead and ensure your assets are in place for your future care needs. If you are already retired, or nearing retirement, you should ensure that your financial affairs are in order, including arranging or updating your Will or Power of Attorney. If you are of working age, you are in the best position to plan for your future; accumulating wealth through investments or savings while you are earning will help with the potential costs of long-term care in later life.
When planning for future care needs it might be helpful to consider the following questions:
- Who in your family may most need long-term care and for how long?
- Do you or another family member need to make long-term care provision now?
- Do you have sufficient money to pay for future long-term care fees?
- How long might you need to pay for a care fees plan?
- Is there the likelihood that home care or a nursing home may be required?
- What activities may you require help with, for example, help with dressing, using the toilet, feeding or mobility?
- Would your home require additional features such as a stair lift, an opening and closing bath, or a bath seat?
Choosing the right funding option for you
Planning and timing are of upmost importance when it comes to funding for long-term care, and this is more the case now than ever. George Square Financial Management can help you to review your funding options for long-term care and minimise the impact of care fees.