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Given social care requirements generally increase with age, rising life expectancy means more people can expect to require care at some point in their lives. One in five men and women aged between 75 and 84 years, for example, have at least some problems washing or dressing, which rises to 34% of men and 42% of women aged over 84. The average age of someone who needed care support in the UK last year was 84.
On average, it costs around £800 per week for a place in a care home and £1,078 for a place in a nursing home, according to AgeUK, though in some places these costs can climb to several thousands. It’s easy to see how your hard-earned retirement savings can begin to deplete in a scenario where your health in old age requires you to pay for long-term care.
Capping the cost of care
Government support is currently limited to those with no or only a small amount of assets. People in England with assets worth over £23,250 have to pay for all social care, and if they have assets below £23,250 (but above £14,250) they are charged a proportion of the costs.
From October this year, however, the government will help fund social care costs for those with assets worth up to £100,000, on a sliding scale down to £20,000, under which it will fund all social care costs. Further, those with assets worth over £100,000 will benefit from the introduction of a lifetime fee cap set initially at £86,000, which the government says is equivalent to about three years of full-time care. Whatever asset bracket they fall into, pensioners might still have to make a contribution to care costs from any income they have.
While, no doubt, a welcome intervention, the new self-funding cap for social care is somewhat misleading in that it applies only to actual care services, not accommodation, which can be significant should it be too difficult for partners or relatives to provide full-time care in their own homes. Room and board make up a large portion of the nightly cost in a care home, which can escalate quickly and thereby erode the value of retirement pots.
“The £86,000 cap relates only to the costs of someone actually caring for you, It doesn’t include food, accommodation, activities, entertainment, utility bills, physiotherapy and other things,” says Aaron Banasik, Independent Financial Adviser, Ascot Lloyd. “That means anybody who ends up in a care home, or even requiring long-term care at home, still needs to think very carefully about how they will pay for it and how it affects their retirement plan.
“The earlier you start, the better. You need to plan as early as possible. I'm having conversations about it with my clients now who have not even reached retirement age yet. I'm letting them know the costs of care and we are building a robust plan that ensures they have a strong financial resource available for care while still meeting their retirement goals.”
A tailored plan for your future
The uncertainty around whether you will need care, and how much it will cost you in the future, adds another layer of complexity to retirement planning. This makes it even more valuable to work with an independent financial adviser who can review your individual finances, circumstances and objectives and design a tailored financial plan for your future.
With knowledge of all of the relevant UK regulations, taxes and allowances, a financial adviser can provide a long-term holistic view which takes into account how much you will need to achieve your desired lifestyle in retirement and legacy planning
A financial adviser will also guide you in other important steps like developing a realistic budget for the future, writing a will and creating lasting powers of attorney to make financial and health-related decisions for you when you no longer have the capacity to do so yourself. Crucially, a trusted financial adviser will help bring your wider family into the conversations, which is crucial to managing expectations and avoiding misunderstandings.
“One of the classic examples we see is clients with assets over the inheritance tax threshold who want to leave a legacy for their children,” says Helen Richardson, Independent Financial Adviser at Ascot Lloyd. “They're hoping to survive at least another seven years, so they can allocate a pot of money that they’re happy to put in a trust, but they worry about how much they need to hold back should they require care. It's very difficult to give large chunks of capital away when you’re unsure how much you’ll need to afford care should it be required in later life.
“We do a lot of work with cash flow modelling which includes looking at the cost of care. Typically, people want to stay in their own home for as long as possible so we will look at the worst case scenario of how much that could cost in the future. We project forward until their expected life expectancy, accounting for inflation. Projections can't be set in stone, but they help put people’s minds at rest that they’re allocating reasonable sums for trusts and gifts.”
Ascot Lloyd engages with clients regularly to adapt life plans to changing legislation, taxes and allowances. If you or your loved ones would like to discuss ways to fund the cost of elderly care, contact your Ascot Lloyd Independent Financial Adviser.
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