Thursday 13th December 2018
The cost of care is becoming an increasingly important consideration when planning retirement finances. But research indicates that many are a long way off being able to cover the total cost of their needs should they be required to use care services.
According to research, a typical Individual Savings Account (ISA) holds £24,035. It may sound like a decent sum to have stashed away but it falls considerably short of care costs. The average elderly person going into a care home will live there for 130 weeks. However, the average ISA will cover just 30% of the bill; the equivalent of 39 weeks.
The cost of care varies hugely around the country, making it an even bigger challenge if you live in an affluent area. According to Paying for Care, a two-year stay in a care home would cost £55,000 in the North West. But live in the South East and you can expect the figure to rise to £78,000.
Even when care home services aren’t required, it’s likely that you will need some support at home in your later years. You may be able to rely on your family to provide some help but using professional home care services may be necessary. You can expect to pay around £15 per hour, an amount that can quickly escalate. Just a couple hours a day will add up to almost £11,000 annually.
With more of us likely needing some form of care in our later years and high costs, it needs to be a consideration when saving. But the uncertainty of whether you will even need care, or the level required, makes it difficult.
It’s clear that there needs to be a greater focus on the potential cost of care. One of the suggestions that’s been put forward to the government is a Care ISA. This would aim to incentivise more people to ringfence some of their savings for future care costs.
While it’s just a proposal at the moment, it’s been suggested that a Care ISA would have its own cap outside of the £20,000 that can be placed in ISAs annually tax-free. The cap would reflect an average cost of care. The money within a Care ISA wouldn’t be accessible for any other purpose than care.
Where reports suggest it could be an attractive option, is when it comes to inheritance. If it’s not used, it’s thought that a Care ISA could be passed on as inheritance without being liable for any Inheritance Tax (IHT). If you have an estate that’s above the nil-rate band threshold for IHT, it could make a Care ISA a tax-efficient way to pass on wealth.
As the government grapples with the rising cost of care services, other proposals for footing the bill are being put forward too. Among these have been an additional tax for the over 40s, following similar levies in other countries, including Germany.
While proposals are being put forward, the government has yet to announce any changes to how care will be funded in the future. For many people, they will be expected to pay a portion of care costs, if not all of it.
Paying for the cost of care yourself also gives you more freedom in later years. You’ll be able to dictate on a range of factors that may otherwise be out of your hands if you’re relying on the state, such as choosing a care home that’s close to your family or one that has facilities that match your interests. Flexibility to choose care can help make your later retirement years more comfortable.
These are all questions that financial planning can help your answer. We can help you calculate what portion of your savings would be needed to fund care depending on your location and personal choices. We’ll then be able to use cashflow modelling to demonstrate how this would have an impact on your wealth over your retirement years.
Furthermore, we can offer advice on the best product for placing your care savings, as well as estate planning should your care fund never be used. It’s our goal to give you complete confidence in your finances, whether you need care later or not, allowing you to enjoy what life has to offer.
If you’re worried about how you would fund the cost of care later in life, please contact us. Our financial planning services can help give you peace of mind.