Keeping Care Costs Under Control

The cost of long term care is something that tends to get forgotten about until it's too late. With annual bills now reaching £25,000+, make sure you're not caught by surprise.

The government announced a six-month review of social care earlier this week. At this stage it's not clear how the present system will be affected but one possibility is a new tax (yes, another one) to fund long term care. What's the problem? Although social care is used by people of all ages, it's our aging population that is at the root of the problem. Currently the government spends £13bn a year on social care, just over half of which is for the over-65s. This bill is expected to double in today's money in 20 years' time. It's likely to be quite some time before any changes from this review are implemented so it's worth revisiting the situation regarding long term care as it currently stands. Care is currently means- tested, with the government paying for around 70% of the costs of care. If the present system remains as it is and costs rise as expected, there will be a funding shortfall. People will end up paying an increasing proportion from their own pockets. Another big issue is that there is a lot of confusion about how the present system works. The rules differ depending on whether you live in England, Scotland, Wales or Northern Ireland. Even different local authorities take different approaches. What are the costs? The government reckons that, of the people that reach 65, one third of men and one half of women will require it at some point. If you think you need care, the first step is to contact your local council. They are obliged to assess your needs and tell you whether you can get any financial assistance. The costs of care are often a lot higher than people expect. Care in the home is often encouraged as it's usually cheaper and most people prefer to stay at home if they can. It costs in the region of £13 per hour for a carer, so if you need one in both the morning and evening for an hour each time, you're looking at costs of £10,000 a year. Care homes tend to more expensive and costs can vary significantly. Homes without nursing care now cost around £24,000 a year and those with nursing care are around £30,000. With the latter, you should qualify for Registered Nursing Care Contribution from the NHS. This is £101 a week in England, so it can help considerably (different rates apply elsewhere in the UK). For complex health issues the NHS may even pay for all of your nursing care fees. If you need care in the home or are paying for a care home, then you should also be able to claim Attendance Allowance. This benefit is currently £44.85 a week if you need help either during the day or night, and £67 a week if you need both during the day and night. Those people receiving Attendance Allowance should also receive higher rates for Pension Credit, Housing Benefit and Council Tax Benefit too. It's difficult to know how long you will need care for. Care in the home could continue for many years. The average duration people live in care homes tends to be shorter and is between 2 and 3 years. However, it is possible to get a care fee annuity to protect your capital against the risk of having to pay care home fees for longer than this. As a rule of thumb, a sum of £50,000 will provide a tax-free income of £12,500, which is often enough to cover the shortfall between someone's income and their care home costs. But rates vary so, as with a pension annuity, it pays to shop around for the best quote. How is care means tested? Currently if you are in England and have assets over £22,500, including your home, then you will have to pay all your care home costs. Below this level you may have to make a partial contribution. In some circumstances, if your partner still lives in your home for example, then its value won't be included in the total of your assets. Also, your home is not counted as part of your assets for the first 12 weeks of a permanent stay in a care home. If you need care in the home, then the same £22,500 limit applies but your home is not included in the total of your assets. It's reckoned that around 70,000 people a year have to sell their homes in order to provide money for care home fees although there is now a Deferred Payments Scheme in operation, which can allow you to delay selling your home by getting a loan from the council. If you do qualify for financial assistance because you are below the £22,500 limit and you're after care in your home then you have two options. You can either take the services provided by your local council or you can apply for Direct Payments. With Direct Payments the council gives you a similar amount of money to what it would spend, and you can then decide how to use it for the services you require. My family set this up recently with an elderly relative and it's been very successful. The additional paperwork can be a burden but we've found it very beneficial as it's allowed us to keep the same carer we've used for several years and cover the vast majority of the cost. It's impossible to cover all the aspects of such a broad subject as long term care in one article so it's worth looking at other sources of information if you want to find out more. Help The Aged and Age Concern have many useful factsheets. Directgov has good sections on care in the home, care homes and Direct Payments. The government has also set up a specialist website containing details of its six month review. For more information on retirement finance, visit our Retirement and Pensions page.