Almost 126,000 people are paying the full cost of their long-term care, according to official figures that reveal the true extent of the struggle to foot a bill that could reach £3,550 or more every month without government support.
Just under 361,000 people were living in care homes in 2021-22, with almost half of elderly residents paying their whole bill with no government contribution, data out this week from the Office for National Statistics shows.
The average monthly cost of residential care currently comes in at around £2,816 a month, but if nursing care is required, for conditions such as dementia, typical bills are around £3,550 – a huge amount of money to cover for those who aren’t eligible for state support.
The current cap, which means anyone with assets worth more than £23,250 must pay their entire bill themselves is due to be scrapped from October next year, when an £86,000 cap on costs kicks in and those with less than £100,000 in assets will receive some state help.
But that calculation doesn’t include the cost of accommodation – only the care itself – and the means-testing threshold will continue to include the value of property if the person is going into permanent residential care and their partner or dependents aren’t still living there.
And that can be a huge problem based on where you live.
For starters, the cost of care homes varies dramatically across the UK, with London-based homes costing the most and those in the southwest or northwest typically coming in most affordable.
Just a fifth of those (of any age) in care homes in the northeast are currently paying all their costs, for example, compared with 44 per cent in the southeast.
“Anyone who has high care needs for several years will test even the best laid financial plans to the limit, and a long period in a care home can leave family finances in tatters,” says Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown. “This data lays bare the enormous social issue of paying for care.”
People living in high property-price areas are particularly vulnerable to having to pay their care costs – because their property quickly busts the asset limit.
“It’s also worth noting this support does not come into play until Autumn 2023 so those in care and their loved ones still face more than a year finding the money to meet these costs before help arrives,” Morrissey warns, and even when it does, families will still face large ongoing bills for accommodation costs that can run into many thousands per year.
Indeed, Joshua Gerstler, a chartered financial planner for financial adviser The Orchard Practice in Borehamwood, says his clients often allow around £60,000a year for the cost of care.
“Sometimes this will come from savings and investments and in other cases it may be paid for via pensions,” he says. “Often the equity in a client’s home will be used.”
The health and social care levy to raise extra money to pay for social care … is widely seen as facing a funding crisis,” said Stephen Lowe, group communications director at retirement specialist Just Group.
“It has stated its intention to end the subsidy that sees self-funders pay more than council-funded residents for the same level of care. We are yet to see the details of how this policy will be effective in practice.
“There needs to be a major national publicity campaign to highlight what the changes will mean – especially the fundamental point that the cap on personal care costs will not be a cap on the overall cost that people will pay.
The government must be straight with people about the many thousands of pounds most will still be expected to pay for their own care under the new rules so that they can plan for the level of care they aspire to.”
Will you need to pay?
In the meantime, if you’re in England for example, and have assets of less than £14,250, the council may pay for care – although it will also take your income into account. It will do a needs assessment, and a means test to check your assets, and if you qualify on both counts it will arrange the level of care it decides you need.
If you’re getting care at home, or only going into a home temporarily, the means test will not include your home. If you’re going into a care home permanently, it may include the home, unless someone from specific groups also lives there. This includes your partner, any of your children under the age of 18, or a relative who is disabled or over the age of 60.
If you have between £14,250 and £23,250 you will have to contribute to the cost of care, but if you have assets over £23,250, you’ll need to foot the entire bill.
But setting aside cash for long-term care isn’t straightforward. Simply trying to save enough money can be problematic because some people won’t need it though many will – which can cause problems with inheritance tax among other implications.
“A guaranteed monthly pension income will go towards the cost of care,” adds Morrissey.
“If [someone has] 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 4 per cent, Morrissey says – 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.
Otherwise, property will quickly need to come into play, either through renting, equity release, selling the property or by arranging 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.
Elsewhere there may be additional support for those with complex medical needs, via a thorough assessment for NHS Continuing Healthcare. You’ll have to have very high medical needs too, requiring regular intervention from medical experts and professionals. You’ll also have to able to demonstrate potential harm if you don’t get the care you need.
If successful though, this could pay for care costs in full in some cases, so it’s worth checking with the patient’s GP.