It’s understandable that you’ll think a lot about your retirement. It’s something that, unless the very worst happens, you’ll get to enjoy.
Because it’s so tangible and it’s easy to look forward to, retirement is something that you’ll actively plan for. You’ll save money regularly and have a good idea of the sort of things you’ll want to do once you stop work.
Long-term social care is a different matter. At this stage, you have no idea whether you’ll need it or, if you do need it, for how long.
It is, however, something you do need to bear in mind, especially as you get closer to retirement.
Here are five key facts about social care to help you understand what it is and to help inform your planning process.
1. Long-term care is expensive
According to social care charity PayingForCare, the average residential care home in 2020 cost more than £34,000 a year and up to £48,000 if nursing care was required. These costs aren’t fixed and are likely to rise in the future.
Also bear in mind that, even if you don’t need to move into a care home, you may well still require some level of support to remain in your own property.
A very basic domiciliary care package, involving a health visitor attending to you for 15 hours a week at £15 an hour, would cost £11,700 a year.
Online care home search and review site, carehome.co.uk, estimates that there are nearly half a million people currently living in care homes in the UK. And, according to the British Geriatrics Society, the average life expectancy of a resident in a care home is 24 months, and 12 months for nursing care homes.
So – as an example – if you needed five years’ support at home before moving into a care home for a further two years, you could expect to pay in the region of £126,000 – which doesn’t take inflation and increased costs into account.
2. The government announced some key changes to care funding in 2021
Support for the cost of social care is currently based on “means testing” – effectively looking at your ability to pay costs yourself.
If you have total assets of more than £23,250 – including the value of your property if you move permanently into care – you’ll be entirely responsible for your care costs.
In September 2021, the government announced a series of changes to the way social care is funded.
- A new Health and Social Care Levy funded through an increase in National Insurance contributions (NICs)
- From October 2023, the £23,250 means-tested threshold will increase to £100,000
- There will also be a “care-fee cap” for how much you’ll have to pay for your personal care. From October 2023, this will be set at £86,000.
However, it’s important to note that the “care-fee cap” only covers your personal care costs. It doesn’t include accommodation, food costs, or other expenses if you need to go into a care home.
This means that if you stay in a nursing home for any appreciable length of time then, although your care costs would be capped, you’ll still pay a substantial amount for the residential aspect of your care.
3. The cost of care could add up
If your assets exceed the means-test limits outlined above – currently £23,250 rising to £100,000 in 2023 – then you’ll have to fund any care you require yourself, subject to the proposed cap.
So, it’s worthwhile taking some time now to consider how you could meet those costs. Doing this now will give you time to plan and take steps to ensure you have sufficient funding available if required.
Clearly how you fund any long-term care you require will depend on your personal financial circumstances. Some possible sources of care financing could include:
- Earmarking some of your pension savings for care provision. One advantage of doing this is that, if you don’t require care, the earmarked amount could pass to your heirs on your death without Inheritance Tax being payable in most circumstances.
- Your State Pension, which is not considered in any means-test calculations.
- Other assets you may have, such as savings and shares contained within an ISA.
- Raising money on the value of your residential property – either through selling it, or an equity release plan. By downsizing, you may be able to live independently for longer, potentially just requiring domiciliary support rather than needing to move into a care home.
- An “immediate needs” annuity. This involves paying a lump sum when you require care in return for guaranteed payment of your care fees for as long as necessary.
4. We’re living longer than previous generations
One key fact to remember when considering the chances of you requiring long-term care at some stage is that advances in healthcare provision mean that we’re living longer.
According to the Office for National Statistics, a 65-year-old man has an average life expectancy of 83.5 years and a woman the same age has a life expectancy of 86.
Furthermore, there’s a 25% chance of that man celebrating his 92nd birthday and the woman her 94th.
So, if you retire when you reach age 65, you can reasonably expect to live for a further 20 years.
The obvious reason why we’re living longer than previous generations is the advance in medical science that means that many diseases that were previously fatal are far less so.
Research published in the Lancet medical journal suggests that, in the next 20 years, the number of people aged 85 and over who need round-the-clock help with basic daily needs will nearly double.
5. You should speak to your family about long-term care
As well as including the potential cost of long-term care in your retirement planning, you should also ensure you keep your family informed of your plans.
This will give them the reassurance that suitable arrangements are in place to meet your care costs without them needing to take any key financial decisions themselves.
Although this is likely to be an awkward conversation, it’s important to grasp the nettle. You may well find it’s a conversation they’ve wanted to have, and they could be able to offer constructive advice and support.
Get in touch
If you’d like to talk to us about social care and how this could affect your retirement planning, please get in touch with us at Rosebridge.
You can email us at email@example.com or call 01204 300010 to find out more.
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This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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