Last week, the government announced a loan scheme which should mean people across England will not have to sell their homes to fund a move into a care home (in other parts of the UK there are different funding systems). Local councils will make loans to cover the care home costs, which will be repaid by the sale of the home when the person in care dies. This will come into effect in 2015.
At present, certain councils provide interest-free loans at their discretion, but from April 2015 this will be universal. However, under the new system, the loans will charge interest, which could roll up to a substantial amount, meaning in some cases it might still be a better option to sell your home.
Ultimately, say advisers, the best option is still to save for your care.
Local authorities will provide support if they find your income and assets are below £23,250, and means test you to see how much they should provide. However, with the rise in value of houses, most people's assets are likely to amount to more than this. Janet Davies, founder of care fees adviser Symponia, does not recommend giving away your assets to try to get round this. Firstly, if a council finds that you are guilty of what is known as 'deliberate deprivation' they can withhold payment of care fees until you have spent the amount you gave away on care.
Even if you are deemed to be worthy of help, you end up with the amount the local authority decides to give you and the care home this can cover. The quality of care homes varies considerably with some of the higher end ones costing in excess of £900 a week, well above a local authority grant. So if you want a choice and better standard of care home, for example, with your own room, television and facilities such as a swimming pool, you will need to fund that yourself.
Planning ahead
If you are already retired and are drawing on your savings, Andrew Neligan, financial planning director at Informed Choice, suggests ensuring you have a varied spread of assets. While you should not be fully invested, you also should not be totally in cash because this is subject to inflation erosion. He suggests you review your savings and income to ensure you are getting some long-term growth, but without taking on too much risk.
These assets should be in different tax-efficient wrappers. While some could be in a pension, you do not have instant access to this, other than a 25 per cent tax-free lump sum, which you probably drew on when you started drawing on your pension – and you pay income tax on what it pays to you. So an individual savings account (Isa), which offers instant access and on which you can draw a tax-free income, is a good option. There is a yearly contribution limit to this, currently £11,280, so after this you could have a portfolio of growth-focused investments and offset this against your annual capital gains tax allowance (CGT) of £10,600. Make sure you use all your tax allowances when saving.
If you are not yet retired, the sooner you start planning the better. There are no specific products for saving for care home fees, so Ms Davies suggests drawing up a plan, ideally with independent financial advice. Assess how much income you have now, how much you are likely to have in retirement and how much your assets will be, and what standard of care home you want and how you will be able to afford that. She suggests you review this every few years.
Read more on The Price Of A Decent Retirement
Another option is a whole of life insurance policy, which pays out a lump sum on the death of the policy holder and could be used to pay back a council care fees loan.
If and when you do need a care home, Mr Neligan suggests shopping around to get the best for your money.
Immediate needs
In case you or a relative needs to go into care immediately, if you have funds you can purchase an immediate needs annuity. This pays an income directly to the care home tax-free. The rate you get will be based on an assessment of how long you are expected to live, so how much it pays out will vary according to your individual circumstances.
You could sell your home or try to get a local authority loan as above.
If you would prefer a carer in your house rather than going into a care home, and do not have funds, you could consider equity release, raising capital against the value of your property. This enables you and a partner to live in your home until you both die or move out. However, set-up costs for this are expensive and you will also not be able to pass the home to your heirs, though if there is anything left after the sale of the home to make the repayments, it will pass on to your estate.
