Posted on: 27-03-2017 in Finance
Recently, we reviewed the UK Care Home Sector 2017. With this article we hope to answer your Frequently Asked Questions (FAQs) on Long Term Care. The Biggest Question is – How do I fund Long Term Care (LTC) in the UK?
It is a big question for more and more families. In roughly fifteen years time, the number of Brits who are aged over 85 will have risen by 75%.
So where’s the money going to come from to either pay for care at home, or pay for care in a Care Home?
Let’s look at the options across nine areas:
The biggest factor will be whether you have care at home – or care in a Care Home.
If you go into a Care Home, the biggest cost factor will be the location in the UK of your Care Home – the more affluent the UK county, the more expensive the Care Home.
The second biggest cost factor if you go into a Care Home is whether it is simply a Care Home staffed by qualified care assistants – or a Nursing Home staffed by registered nurses. Nursing homes are often as a much as a quarter more expensive than Care Homes but provide a heightened level of medical care that may be appropriate for you.
Average weekly residential fee: £563
Average weekly nursing fee: £756
£30,000 a year.
£40,000 a year.
The culprit is the North/South Divide (the trend in the UK by which people in the South are economically better off than those in the North).
According to sector experts LangBuisson, a week in 2015 of residential nursing care would set you back an average of £920 in the South East of England but just £631 in the North East. That’s the difference between roughly £48k and £33k a year.
Care Homes in wealthy UK counties charge a lot more than in poorer UK counties, which tend to have Care Homes with high concentrations of Local Authority clients.
In 1984, Local Authorities owned almost six out of every ten Care Homes and now, over thirty years later, they own only roughly one in ten.
The way it works now is that Local Authorities pay for eligible Brits to stay at the private care homes which dominate the sector. Six out of every ten Care Home clients is partially or fully paid for by the State.
There are almost 500,000 Care Home beds available in the UK, and the occupancy rate is currently 90%. Availability varies from county to county.
There are pressures on Care Home operators in the form of low Local Authority fees coming in and the 7.5% wage increase brought on by the new National Living Wage. But the sector is growing – with UK market value up £0.8bn between 2014 and 2015 to stand at £15.9bn in 2016.
So finding a bed shouldn’t be a problem in the future – it will be paying for one that’s the issue.
It depends on whether your savings and assets combined are valued at more than £23,250 (England, Wales, NI) or £26,250 (Scotland).
If you come in over this value threshold, you will be expected to pay for your care yourself – with financial top ups available if eligible.
Based on the £23,250 threshold (apart from for Scotland), this is the calculation performed by a Local Authority which determines whether you will have to pay and, if so, how much.
You will be assessed on the value of your property (but NOT if your partner is still resident), the value of any pensions you have, the value of any savings (and interest) and certain benefits you may be receiving.
If you are eligible for Local Authority financial help, you can choose how you receive that help.
You can either receive Direct Payments which you use yourself to fund your care, or you receive the services directly provided by the Local Authority (often via a private health provider).
If you choose to receive Direct Payments, you will need to show that you are using the funds to execute a pre-agreed Care Plan.
A Local Authority Care Plan is a written agreement between you and an authorised health professional which lays out how you are going to manage your care.
It’s a good question because there are two main types of “Care Home” – regular care homes on the one hand, and, on the other hand, nursing homes for those with heightened medical needs; some nursing homes specialise too in dementia care.
You can tailor the care you receive in your home to match your needs. Generally, Brits receive some combination of:
Yes. Care Home costs in the UK vary massively depending on the affluence of the county in which they are based. And yes, the cheaper they are, the less money generally is spent on creating a comfortable experience.
But one thing is for certain – if you’re on a budget, you’re likely to consider care at home first.
“ … a package of care that is arranged and funded solely by the NHS for individuals who are not in hospital and have been assessed as having a “primary health need”.” (www.nhs.uk)
CHC is not means-tested – so if your Local Authority Means Test leaves you facing care bills yourself, CHC might provide another route to State funding. It is for anybody with a serious health problem or disability.
Your health will need to be assessed. The NHS will have to be assured that you have a “primary health need.”
Not in terms of eligibility, no. Eligibility for Continuing Healthcare funding does not depend on one specific care venue, or care provider, or type of illness or condition.
You might be eligible for a type of NHS funding referred to as either Funded Nursing Care (NFC) or Registered Nursing Care Contribution (RNCC).
This financial support is intended to fund nursing care for people in care homes. It is not means tested and, for 2016/17, the rate is £156.25 a week (www.nhs.uk).
You sell up your existing home and use the proceeds to a) buy a smaller home and b) pay for long term care.
Downsizing is a sensible way of releasing equity without getting involved in commercial equity release schemes, like Lifetime Mortgages and Home Reversion schemes.
Downsizing is unlikely to release as much money from your property as a Lifetime Mortgage, but does mean that you stay in complete control of your assets.
Downsizing means you avoid the high fees and loss of control involved with commercial equity release – with the only major downsides (in comparison) being the weight of various fees due on the property transaction, and the fact that no tax relief can be claimed on the basis that some of the proceeds of the sale are going towards funding care.
There are two main commercial arrangements available to “release” the value of your home – if you own it:
You borrow the money for care funding against the value of your home. You then pay back the money (and interest) when the house is sold (usually when you die).
A Lifetime Mortgage is suitable if you plan to stay in your home and receive care – but accept that you will not be passing your home on to family members.
With a Lifetime Mortgage you are effectively exchanging the ownership of your property for the funds to pay for care at home. This means that, when you die, surviving family members will not inherit the property – but may inherit a proportion of the proceeds of its sale.
The same disadvantage applies to Home Reversion, the other common form of Equity Release Scheme.
There are two main commercial arrangements available to “release” the value of your home – if you own it:
Both arrangements – you will be glad to know – are regulated directly by the UK’s Financial Conduct Authority (FCA).
You raise the money for care funding by actually selling all or part of your home – but retain the right to live in it, rent-free. You can receive money as a lump sum, or in fixed payments.
Just as with Lifetime Mortgages, a Home Reversion plan is suitable if you plan to stay in your home and receive care – but accept that you will not be passing your home on to family members.
Equity Release plans are high risk affairs. Your home will be at stake. The instant convenience of a lump sum to pay care fees may be attractive, but be sure to take professional, independent advice before committing to a deal.
Rates are notoriously bad for Home Reversion schemes. You might get a sum that’s less than half the value of your property on the open market.
It’s the uncertainty that’s so expensive. The deal is that they get their money – in the form of proceeds from the sale of your house – at some hazy point in the future when you either go into care or die. Insurers hedge themselves against this factor – and the possibility that the housing market might go south – by charging high rates.
This financial product is an annuity contract.
You pay a lump sum upfront to an insurance company and they provide a guaranteed regular payment for life to go towards care fees.
Immediate need care fee payment plans; immediate care plans.
It depends on many factors:
No. As with many financial products, flexibility and protection will cost you more.
Yes – if you are just moving into a care situation – either at home or at a care home – and you want to cap your long term care funding by making a single one-off payment.
No – if you might be eligible for NHS Continuing Healthcare Funding (CHC).
This is an annuity contract, just like an Immediate Need Annuity – apart from the fact that you get better rates on the basis that the standard of your life is irreparably impaired.
Terms are used differently in the industry. Sometimes Enhanced Annuities are viewed as a catch-all term for Smoker Annuities and Impaired Life Annuities. And sometimes distinctions are made between all three.
Rather than ask an insurance company to explain the difference, ask a broker. As well as appreciating the differences in product types, a broker can see how annuities fit into your bigger financial picture in a way that an annuities specialist may not be able to.
Note that the rates and conditions for specialist annuities tend to be volatile – so what holds true last year for a particular medical condition, for example, may not be valid this year.
Your insurance company will subject you to a rigorous medical inspection. Terms vary from provider to provider, but generally you may be eligible for the improved rates on offer if:
This is a financial product usually provided by a life insurance company.
An investment bond which may provide sufficient medium- to long-term growth to help towards funding long-term care.
You pay a lump sum. The issuer invests that lump sum for you. You can then cash the bond at a later stage, accruing any investment gains that have been made as well as your invested lump sum. (All sorts of conditions apply for early cashing etc.)
No. Categorically not.
Investment bonds are used by some consumers to fund their Long Term Care – often as part of a financial plan with other financial products and arrangements.
One of the advantages of investment bonds is that the money that is eventually cashed can be used for anything.
An investment bond isn’t really a conventional “bond” at all:
The term “Bond” is generally used to describe the guaranteed bonds with which governments and corporations effectively borrow money from private investors in exchange for a fixed annual return.
For example, a 3% bond with a value of £1000 would yield £30 a year of income.
Guaranteed bonds are often used in investment portfolios to balance other investment in assets with a fixed return.
Some quick tips: