This is where using a specialist independent financial advice service for those paying for care and their families, can pay dividends as they will look at the whole picture and ensure that all benefit entitlements are being claimed. They will look at the available income and assets and advise you on the possible solutions for paying for the care your loved one needs.
Most people fund their care from their pensions topped up with savings, at least for a month or two until they have had chance to assess the situation. It is important that this does not go on for too long as, depending upon the type of care needed, the savings could be diminishing at £1,000+ per week. As the capital will run down very quickly, it is important to establish a funding plan with the available capital as soon as possible while there is still the option to do something.
When paying for care, income from all sources is added together and set against the cost of the care. Usually the amount coming in from the State and personal pensions is much less than that required to cover the care fees and it is important that people who are meeting the cost of their care themselves consider what will happen when their personal savings have been exhausted.
If your capital is likely to reduce to the Local Authority limits fairly soon, you should approach them for assistance as they will need to make preparations to step in and take over funding your care. You should also check that your current care home will accept Local Authority rates for your accommodation. If they need more than Local Authority rates, you will need to find a third party such as a relative of friend to 'top-up' your fees or consider moving to another home which will accept the amounts paid by the Local Authority.
Using your property
It is essential that the Local Authority assessments have been completed to establish what help may be available from this source, as if the person needing care has savings below £23,250 they could enter an arrangement with the Local Authority called the Deferred Payments Scheme to pay for their care and the debt repaid after their death.
If this is not available, using equity release could be a valuable option to access monies to pay for carers and other items to make your life more comfortable. If you are receiving your care at home, many people do not realise that it is possible to release money from their home to pay for their care without having to sell it and the terms available are getting better all the time as more people use this option. Find out more here.
However, it is important to look at the overall situation and consider whether a move into residential care may happen in the near future because, if this is the case, the funds released using Equity Release could negate any entitlement to funding from the Local Authority that you may have received if you hadn't proceeded with the equity release in certain circumstances. Find out more here.
If you are intending to sell your property The National Careline has partnered with providers who can advise on bridging the period between moving into the home and selling your property. We can also help arrange a stress-free property sale where the whole management of the property and sales process is managed for you.
Using your investments
If you have a large investment portfolio, a possible solution may be to fund your care from the income and capital generated as long as the shortfall amount is not too large and the person has sufficient capital to easily generate the income required. If you have a large amount of capital and perhaps only need to generate a low percentage of income this should be possible, but if you need to generate a percentage of income that is too much above what you can achieve on deposit, then you should be mindful that generally, the higher the amount of income required from an investment, the more risk is taken with your capital to achieve it. Obviously, there are risks with everything but, in this situation, it would be prudent to look and consider all the options open to you to meet the cost of paying for care and to review your decision regularly.
Immediate needs annuity
For those about to enter care or already in care and having to pay their own fees, an immediate needs annuity is a very straightforward tax-efficient solution to meeting the costs of care. It is paid for by a lump sum premium to an insurance company with the monies often coming from the sale of the resident's home. The annuity will pay the amount insured to the provider of a person's care for as long as they need it, which is usually for the rest of their life. This means that, providing the amount of cover arranged equals the amount of cover required, the risk of running out of money is minimised, if not completely removed.
The premium is calculated with reference to a person's age, state of health and sex. It is usually underwritten when a health questionnaire and reports from the care home and client's doctor have been received by the underwriter. In total reverse to normal life assurance, the shorter the life expectancy of the person, the lower the premium.
The arrangement is very tax-efficient because, although the person owns the policy, as the benefits are paid directly to the care provider and they are registered with the Care Quality Commission (England) or their equivalent authorities in Wales or Scotland, the payments are made without any tax deduction.
It is important that the amount insured is sufficient to cover the shortfall between a person's income and the money going out in care fees plus a monthly amount of spending money for personal use. To remain tax-free, it cannot, in any case exceed the amount paid in care fees to the care provider. In addition, it would be wise to build in an annual increase as it is virtually certain that the fees will rise each year.
A disadvantage of immediate needs annuities is there is usually no return of premium in the event of death. There is therefore a risk that the person in care dies quickly, and the money is lost. However, if the person survives longer than expected then the cost at over £1,000 per week could be huge, and eat up the whole estate. There is therefore a balance of risks to consider.
A 'mix and match' approach
Some people are more comfortable combining their options and use a care fees annuity but defer the start of payments for anything between one and five years. The premium charged becomes lower for each year of deferment, but it has to be paid up front and will be lost if the person dies early.
In the interim period, the person will pay for their care from savings or the sale of their property, until the chosen deferment period finishes. Again, indexation of benefits can be included to help to protect the value of the benefits when they become payable.
This is a very simplified explanation of the options available and it is important that you receive assistance from a qualified adviser to weigh up the 'pros and cons' of each choice to enable you to come to the best solution for your family.
Please contact us or phone our helpline on 0800 0699 784 for general information about funding care but, if during the conversation, we feel it would be in your interests to take advice from a suitable qualified financial adviser, we are able to introduce you to an adviser at our sponsors Better Retirement Group who are able to give regulated financial advice.