How to pay for long-term care

Thanks to medical advances and healthier lifestyles, a growing number of us are enjoying longer lives.

Many of us in our fifties or sixties will have parents in their eighties and nineties who are still going strong, but in those later years of life, the chances are they may need help looking after themselves, whether in their own homes or in residential care. Research from public health journal The Lancet suggests that in the next 20 years, the number of people aged 85 and over who will need round-the-clock help with basic daily needs will nearly double.

Of course, as anyone who’s had to find long-term care for relatives will testify, fees don’t come cheap. People often have to make rushed and difficult decisions about a loved one’s care needs – and how to fund it. However, planning ahead and thinking about the various available options in advance could help you work out how to cover costs should your parents need care in later life, ensuring you’re prepared for when difficult and often emotional decisions need to be made.

How much does long-term care cost?

Fees for long-term residential care can be eye-watering.

According to charity Age UK, fees are typically around £600 a week for a care-home place, rising to more than £800 a week for a place in a nursing home, although actual costs will depend on where you live. A care home  provides 24-hour staffing and help with residents’ personal care, whereas a nursing home is for those who need medical support too.

In 2016/17, for example, London was the most expensive area to fund a care-home place, at £741 a week, whilst the North-West was the least expensive, at £511 a week.

Funding for care is means-tested by local authorities and could be the biggest cost your parents or other relatives face in retirement if they’re not eligible for local authority or NHS funding.

Eligibility will largely depend on their health and mobility combined with the value of their savings, assets and income. For some, there will be nothing to pay, others will have to foot the entire bill, while a large number of people will fall somewhere in the middle.

Financial help with care funding from your local authority

Your local council may be able to help your relative with the costs of a care home or, if they prefer to remain at home, with paying for carers,  equipment and specialist services.

The amount of funding that they will receive varies, and will be determined by a number of factors including:

  • What their individual needs are (based on a care needs assessment)
  • How much they can afford to pay towards care costs themselves (they’ll be assessed financially)

If your parent or relative has a serious medical condition or a long-term disability, they may qualify for Continuing Healthcare (CHC).

This is provided free of charge by the NHS and care is available either at home, or in a hospital, nursing home or hospice. Unlike local authority funding, NHS Continuing Healthcare is not means-tested.

A person is more likely to qualify for Continuing Healthcare if they have mostly healthcare needs rather than social care needs, or in other words, if they need medical support rather than a carer. To determine whether a parent or relative might be eligible for Continuing Healthcare, a health or social care professional will use a checklist covering areas of care such as cognition, mobility and continence. If their needs are considered high in a number of these areas, they will then undergo a full assessment. Following this assessment, they’ll be notified whether or not they qualify.

You can find out if a parent or relative may be eligible for NHS Continuing Healthcare funding here. If you have any questions or need further information, the NHS recommends speaking to an organisation called the Beacon, which gives free independent advice on NHS Continuing Healthcare. Visit Beaconchc.co.uk or call the free helpline on 0345 548 0300.

If they aren’t eligible for Continuing Healthcare funding, and live in England or Northern Ireland, they’ll need to have less than £23,250 in savings, including any money in or taken from their pension, for the local council to pay towards the cost of their care.

If they have between £14,250 and £23,250 in savings, then they’ll qualify for some support, but if they have less than £14,250, their local authority may cover the full cost of care.

If a parent or relative lives on their own and then goes into residential care permanently, their local authority may also factor in the value of their home when assessing how much they can afford to pay towards their care costs. However, they can’t include the value of their property in their financial assessment for the first 12 weeks after they move into care, so they have time to think about their options. If their partner or spouse is still living in the property, the value of the property will be disregarded.

Covering long-term care costs without funding

Depending on their circumstances, your parent or relative might not qualify for any funding from the NHS or their local authority.

Even if they do, the amount they receive might not be enough to completely cover their care costs either at home or in a care home, meaning they’ll have to make up any shortfall. As already mentioned, if their income and assets, including their home and any savings is above the £23,250 threshold, they’ll usually have to cover the full cost of care fees themselves.

For those fortunate enough to own their own home, a common way of funding long-term care is to think about selling their home, although this is not without risks and considerations. Properties can take time to sell, so it’s often not a quick solution. If your relative is eligible for any means-tested benefits, when their home is sold, this might affect their eligibility for these benefits.

If your parent has less than the £23,250 threshold in savings, with the remainder tied up in the value of their home, and they are unable to or don’t want to sell their property to cover care costs, it may be possible to opt for ‘deferred payments’ with their local authority. This essentially means that the council initially pays for care costs and this money is repaid when their home is eventually sold.

As a result, they won’t have to sell their home immediately to pay for care home fees. The local authority may charge interest on the deferred payments to cover costs, as it’s essentially a loan, but this rate is set by the government. In England, for example, thanks to the Care Act, the government-approved standard rate is linked to the market gilt rate which is published every six months, plus 0.15%.  At the time of writing (March 2020), this equates to around 2%.

Typically, when a property is factored into the means test, most local authorities will exclude 10% of its value to ensure that there is enough money available to cover selling costs and to make sure the local authority gets their money back if house prices fall.

However, the local authority can’t do this for the first 12 weeks after they’ve moved into care to give them time to think about the options available to them.

Other care funding options to consider

If the above options are not feasible, don’t despair – there may be other ways for your parent to raise the cash they need to cover their long-term care costs.

Renting out their property

If they don’t want to sell their home, it may be possible to rent it out to provide an income which will cover their care costs. However, they must be prepared for the fact that there may be ‘void’ periods when they don’t have tenants and therefore there’s no rent coming in. There will also be maintenance costs to cover, as well as letting agent property management fees.

Equity Release

Equity release allows your parent or relative to unlock some of the wealth they may have tied up in their property, without having to sell their home. They can extract cash in a single lump sum or in smaller amounts over time through what’s known as drawdown.

Unlike a conventional mortgage, with equity release there are no monthly repayments to make – instead, interest rolls up and the loan plus interest is repaid when the property is eventually sold. It is not without risk however, and if eligible it may well be cheaper to take a loan from the local authority (by deferring payment) at a 2% rate of interest than using a private equity release scheme. If you would like to find out more, you can find out more about equity release in our guide Equity release: what is it and how does it work?

Downsizing

Another option they may want to consider is downsizing their property. While they’re unlikely to raise as much cash as they would through selling their property outright, it can be more cost-effective than equity release as they won’t rack up any interest charges, and will enable them to keep a foothold on the property market that they could still leave to family or friends when they die.

If they plan to receive care in their own home, rather than a care home, then a smaller home may also be more manageable and could help them to reduce their household bills and running costs.

Using a pension to pay for care costs

If your parent or relative has built up significant retirement savings over time, they may decide to put some or all of the income from their pension towards their long term care costs.

The local council will treat your parent’s pension as an asset and include it when working out what they can afford to pay towards their care. Find out more at Pensionwise.gov.uk.

Additional benefits they may be entitled to

Even if they have to pay for care costs themselves, your loved ones may still be eligible to claim some benefits which could help with the cost.

Certain benefits aren’t means-tested, so they may qualify for them if their health needs are great enough regardless of any income or savings. These include:

  • Attendance Allowance
  • Disability Living Allowance
  • Personal Independence Payment (which is replacing Disability Living Allowance)

There are also other benefits that they may be eligible for depending on their circumstances.

Find out what benefits they may qualify for at the Money Advice Service.

Remember...

Working out how to fund long-term care can be complicated, so it’s worth your parent or other relative seeking professional financial advice if they’re not sure how to proceed. They, or you, can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.

Have you had to help a relative work out how to pay for their long-term care? If so, we’d love to hear from you. You can get in touch via [email protected] or share on the Rest Less Community forum.

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