All information is correct as at 30 April 2023 unless otherwise stated.
Would paying out £1,789 a week unravel your retirement plans?
Following a fall which broke his hip just before his 87th birthday, Alfie* spent some weeks in hospital and then a reablement home before returning to his modest detached home in the suburbs which he shared with his wife, Sandra*.
Continuing care assistants came in twice a day to help him rise and retire until Alfie was able to better manage this himself, with support from Sandra and their wider family.
The rules around financial support for care costs are complex.
If you live in England or Northern Ireland, you have to meet care costs yourself if your assets exceed £23,250 – this is due to rise to £100,000 from October 2025. For Scotland, the limit is £32,750. And for Wales it’s £24,000 for non-residential care and £50,000 for residential care.
Adult social care costs are different depending on where you live. Use your government’s website to find out what the latest costs and changes are.
Alfie’s care and support (including a special bed and other devices) were free to him until he had been at home for a few weeks. Then the funding stopped. At this point they switched care providers to a local, private agency which they paid direct.
*Names changed
A growing problem we cannot ignore
Among older people, requests for care support hit 1.36 million in 2021/22. At this rate of growth, requests for care support will exceed 2 million across all age groups for the first time in 2022/23.
Being in their 80s, Alfie and Sandra had built a large portfolio from regular use of firstly PEP (Personal Equity Plan) and then ISA allowances. Their pensions met their needs with a modest surplus and they were financially comfortable.
They were able to meet the costs of private carers of around £1,000 a month from a combination of income and dipping into their savings. At this stage, the cost of care felt very manageable. However, developments over the next few months were set to throw all their financial plans into doubt.
Respite care
Just as they were establishing some sort of routine, Alfie was diagnosed with dementia and over the next couple of months his mental cognition deteriorated rapidly.
Even with increased private care support, Sandra and her family found it harder to cope until they decided respite care was needed. A two week stay in a local home was arranged at £1,789 a week.
Over the next three months, two further stays were needed before Alfie sadly died just over a year after his fall and a few days before a permanent move to the care home had been arranged.
From a financial perspective, Alfie and Sandra had been able to absorb a total of around £20,000 of care costs through a combination of surplus income and savings.
The biggest risk to their financial resilience was the need for Alfie to have permanent residential dementia care. Respite care is more expensive than permanent care and the weekly cost would’ve reduced to £1,579. But that’s still a staggering £82,000 a year to find on top of the cost of running their home and providing Sandra with sufficient income to live.
At that rate, their cash savings would’ve been spent in around a year and a half and they would’ve started to eat into their ISA portfolios.
How to plan for care costs
Cash is often king
When care costs hit, there’s an immediate need for cash – consider how you might meet a £1,579 weekly bill. In our case study, the respite care provider wanted payment up front.
One way to make things a little easier is having an emergency cash buffer. The minimum cash buffer you should consider holding in an easy to access account is three to six months’ worth of expenditure. But if you’re retired, you should hold much more – one to three years is often sensible.
Build your wealth and use an ISA for ultimate tax flexibility
Alfie and Sandra held their entire fund portfolio in ISAs. This meant the income and capital they were going to start to draw from to help meet care fees would be entirely free from tax. Changes to the portfolio to either reduce risk or increase income can be easy and cheap to do – and you don’t have to worry about capital gains tax.
As always, it’s important to regularly review your investments to make sure you remain on track with your objectives and attitude to risk, which can change as you get older.
Don’t give away too much too soon
Inheritance tax is usually paid at 40% on the value of your estate (your property, money and possessions) over the £325,000 allowance (the normal nil rate band). There’s also an additional allowance of up to £175,000 if you pass on your family home to children or grandchildren.
Gifting is a good way to reduce the inheritance taxable value of your estate. However, be mindful of the costs of care and don’t give away too much too soon.
Tax rules can change and any benefits depend on personal circumstances.
Take advice
If you’re not sure about how to arrange your financial plans to meet the cost of care, either as a contingency or at the point of need, take financial advice. We have specialist long-term care advisers who are SOLLA (Society of Later Life Advisers) accredited. They’ve undertaken extra certification and training to advise on long-term care with the specialist knowledge and practical experience needed in such a complex area.
Find out more about financial advice
If you’re struggling with the emotional impact of care, you can also get in touch with Citizens Advice.
This article isn’t personal advice. If you’re not sure on a course of action, ask for financial advice. All investments can fall as well as rise in value so you could get back less than you invest.
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