Pension planning takes priority for many people during their working years but covering care costs for later years may be missed. Unfortunately, new research from Hargreaves Lansdown (HL) showed many savers may need to take drastic measures to cover their parents’ care costs.
“A few hours of care at home each week can be much less expensive, but if you need live-in care, costs are between £1,000 and £2,000 a week. There’s a reason why, when talking about paying for care, one of the categories is ‘catastrophic costs’ (when the total hits £100,000 or more in your lifetime).
“When asked how their parents could cope with the cost, the most common answer was that they would pay for it from savings (45 percent).
“But while this may well cover a few hours of care in their home, most people’s savings would struggle to pay £50,000 or £100,000 a year. It’s one reason why the second most common answer was to sell their home (30 percent).
“More than one in ten said the council would have to cover the cost (13 percent). However, it’s essential to understand the circumstances under which the local authority will foot the bill – and what they’ll actually pay for. Meanwhile, almost one in five said they would have to pay for this care themselves (nine percent). Given the costs that can be involved, this is an enormous commitment.
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“Covering the cost of care is difficult enough if you’ve planned for it, but if it comes out of the blue, it can be even more challenging.
“That’s why, even if you’re one of the one in five who are confident your parents will remain independent for life, unless you’ve made a specific plan to care for them in some other way, it’s worth considering what would happen if they needed help. Even when someone is fit, healthy and fiercely independent, it doesn’t mean they’ll always be able to take care of themselves.”
Ms Coles went on to explain as people get older, they’re less likely to think their parents will need paid-for care.
As a result of this, only 15 percent of those ages 55 or over say they’ll need it and their children may incorrectly assume their parents can afford it should the need arise.
Local councils in England, Ms Coles noted, will pay for care but only to those who have less than £14,250 in assets.
Those with between ££14,250 and £23,250 will have to contribute to some of the costs of care, but if a person has over £23,250 in assets will “need to foot the entire bill.”
With these costly care issues in mind, Ms Coles concluded by providing guidance on how people may cover the costs.
Where medical costs arise a person’s GP should be the first place to turn, as Ms Coles explained: “If your loved one has complex medical needs, they should be assessed for NHS Continuing Healthcare. This can pay for all their care in some cases, and can be incredibly valuable, so make sure you check with the GP.
“However, don’t assume they’ll qualify. The NHS will go through a rigorous assessment process first, to decide whether your medical needs are complex enough to require NHS care.
“It’s not enough to have caring needs, you’ll have to have very high medical needs too, requiring regular intervention from medical experts and professionals. You’ll also have to be able to demonstrate potential harm if you don’t get the care you need.
“One option is to save a pot of money for potential care needs. The difficulty here is that most people will never need it, and some people will need hundreds of thousands of pounds, so it can be difficult to plan effectively.”
A person’s retirement funds can also be sensibly accessed to cover caring costs, as Ms Coles detailed: “A guaranteed monthly pension income will go towards the cost of care. If they’ve accessed their pension under pension freedoms, they may have money in their pension pot that can be used too. For younger people, this often makes sense as a way to save for your own care needs, especially if you’re saving into a workplace pension and your employer is helping to build the pot too.
“For this to be effective, you need enough left in the pot to cover care costs, which is possible if you live off the income produced by the investments (usually around four percent) without dipping into the lump sum.
“And if you never need this money to pay for care, you may be able to leave whatever is in your pension to your family without paying inheritance tax.”
In concluding her advice, Ms Coles noted property itself can also be utilised: “Often the value of the property will need to be used in some way. Some people will rent the family home out to cover fees, although this is risky because rental income is not guaranteed, and will be depleted by maintenance and repairs.
“You can consider equity release to free up some of the capital in the property, but this is expensive. There will be a set up cost, and usually any interest on the loan will roll up, and needs to be repaid when the property is sold. The longer you live, the more the interest will cost.
“There’s also the option of a deferred payment arrangement with the local council, which becomes an option once your savings (excluding your home) have dropped below the threshold. The council adds up the care fees payable during your life, and then after your death, your family can sell the house and repay the debt – along with any set up fee and interest. Councils tend to charge less interest than equity release, so this could be a cheaper option in the long run.
“But for many people, the most sensible option ends up being selling the property. You might pay fees from the lump sum as you go along, but it’s worth considering an immediate needs care annuity – which is also known as an immediate care plan or care fees annuity. These pay a fixed amount to the care home every month for the rest of your life, and tend to cover the gap between pension income and the cost of care. They pay much better rates than standard annuities, but you will still need to pay for care for a number of years to break even.”