Don't let care home fees erode a lifetime's wealth
Many of us plan for inheritance tax to stop chunks of our estate going to the tax man instead of our children. But there’s a much greater threat to your lifetime’s wealth that few people think to prepare for.
“Care home fees can eat into your capital at an alarming rate,” warns Ruth Dolan, a Chartered Financial Planner with leading south east law firm Furley Page.
“Anyone with assets of more than £23,250 is expected to pay for their care. With average annual care home costs now standing at £25,000, you could easily use up all your capital within a few years, leaving very little for your beneficiaries.”
This week, economist Andrew Dilnot unveiled the Commission on Funding of Care and Support’s long-awaited report into radically reforming the current care system, which Dilnot describes as ‘confusing, unfair and unsustainable’.
If the Commission’s recommendations are adopted by the Government, care costs will be capped at £35,000 and the means-tested assets threshold will be increased from £23,250 to £100,000.
The changes would ensure that nobody who requires residential care in retirement would have to spend more than 30% of their assets paying for it, says the Commission.
But despite the proposed shake-up, people in care homes would still be left facing huge bills over an indefinite period, says Ruth, a member of the Society of Later Life Advisers.
“The cap will not include things like food, heating and general living expenses, which account for around half of a care home bill,” she says. “And of course, even with a cap in place, you’d still have to find up to £35,000 to pay for the care itself.”
Commission chairman Dilnot recommends a separate ‘bed and board’ annual limit of between £7,000 and £10,000, with the state assisting with the cost above that level. But the cost will apply for every year you are in residential care – so if you live in a care home for 10 years, you could still pay up to £100,000 just for general living costs.
While the reforms would go some way to making the system fairer, and would shield people from the full cost of care, there are still a number of issues that need to be resolved.
For one thing, it’s unclear how the reforms would be funded. The changes, which Dilnot is urging the Government to implement by 2013, are expected to cost around £1.7bn a year, and the Treasury is already under pressure to consider tax rises and further spending cuts to help pay for the overhaul.
“Whether or not the Government acts on the Commission’s findings, it’s important that you plan and prepare for your old age,” says Ruth. “Life expectancy is increasing – the number of people living beyond the age of 85 is expected to double in the next 10 years – so you can’t afford to just leave your savings and investments where they are and hope that they will be enough to see you through.
“There are a number of options you have to consider and choices to be made about the type of care you receive and where. For example, the care home you choose may have higher than average fees, particularly in the South, which will eat into your assets even faster and could mean your family having to assist with top-up payments,” adds Ruth.
“If your assets have been heavily depleted, you may even find yourself being funded by the local authority which could have a significant impact on the choice and control you have over your care.
“It’s important you keep control of your finances and find an adviser that specialises in funding care fees. The Society of Later Life Advisers can point you in the right direction to ensure you receive the best possible advice.”
For further information, visit: furleypage.co.uk
