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:
1. How much does LTC cost?
What’s the biggest factor in the cost of my Long Term Care?
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.
So how much does staying in a Care Home cost roughly?
Average weekly residential fee: £563
Average weekly nursing fee: £756
What’s the rough average it will cost for me or a relative to be in a UK Care Home for a whole year – WITHOUT nursing care too?
£30,000 a year.
What’s the rough average it will cost for me or a relative to be in a UK Care Home for a whole year – WITH nursing care?
£40,000 a year.
Why do Care Home fees vary so much from county to county in the UK?
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.
I thought the Local Authorities didn’t own any Care Homes anymore?
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.
Will there be a spare bed in a Care Home for me?
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.
2. Will the State pay for my own Long Term Care?
Local Authority Funding
The Big Question: will I have to pay for my own Long Term Care?
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.
What is a Local Authority Means Test?
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.
How does the savings and assets threshold in a Local Authority Means Test work?
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.
What are Direct Payments?
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.
What is a Local Authority 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.
3. Care Home vs. Home Care
What does “Care Home” mean exactly?
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.
What does “Home Care” mean exactly?
You can tailor the care you receive in your home to match your needs. Generally, Brits receive some combination of:
- Meals-on-Wheels (ie. hot food brought to the door each day).
- Regular visits from a worker to assist with personal hygiene and general domestic tasks.
- Regular visits from a specialist nurse (if necessary).
- Adaptations to the home to make it more secure/safer to physically navigate.
What are the advantages of choosing Home Care for Long Term Care?
- It’s cheaper to stay at home and receive care than go into a home – up to a point. You will need to pay around £15 per hour for home care and there does come a point, if carers need to sleep over regularly, when you’re looking at paying out way over £100k year – when few of the most expensive nursing homes charge more than £80k a year. If you have intensive medical needs, residential care may be the only remotely-approachable option.
- You get to stay in the home in which you may have lived for many years.
- The value of your property is not included in your Local Authority Means Test if you intend to receive care at home (logically it cannot be, because to release those funds you would have to sell the home and would therefore not be able to receive care at home).
- You stay in control.
What are the advantages of choosing a Care Home for Long Term Care?
- Somebody else is taking care of business. All The great thing people report about care homes is the relief they experience that their life is not full of responsibilities they don’t feel they can handle and therefore let other people down.
- Trained staff on hand – and for people with serious medical complaints, this is often the deciding factor to go into a home of some sort.
- There’s company. Loneliness is recognised to be a significant factor in depression and other illness – especially for older people – and care homes deal with that to some extent.
Isn’t it difficult to generalise about Care Homes – both in terms of cost and living experience?
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.
4. NHS Continuing Healthcare
What is NHS Continuing Healthcare (CHC)?
“ … 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)
Who is NHS Continuing Healthcare for?
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.
How can I get NHS Continuing Healthcare Funding?
Your health will need to be assessed. The NHS will have to be assured that you have a “primary health need.”
Does NHS Continuing Healthcare pay for extra healthcare in Care Homes?
Does NHS Continuing Healthcare pay for extra healthcare outside of Care Homes for people having care at home?
So does it matter where I receive the treatment that the Continuing Healthcare pays for?
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.
What if I have a medical issue that needs special care whilst I’m in a care home, but I can’t get NHS Continuing Healthcare Funding?
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).
What does downsizing mean?
You sell up your existing home and use the proceeds to a) buy a smaller home and b) pay for long term care.
Who is downsizing suitable for?
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.
What is the big disadvantage of downsizing?
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.
6. Equity Release – Lifetime Mortgage
There are two main commercial arrangements available to “release” the value of your home – if you own it:
- Lifetime Mortgage
- Home Reversion (see next section)
How does a Lifetime Mortgage work?
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).
Who is a Lifetime Mortgage suitable for?
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.
What is the big disadvantage of a Lifetime Mortgage?
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.
7. Equity Release – Home Reversion
There are two main commercial arrangements available to “release” the value of your home – if you own it:
- Lifetime Mortgage (see previous section)
- Home Reversion
Both arrangements – you will be glad to know – are regulated directly by the UK’s Financial Conduct Authority (FCA).
How does Home Reversion work?
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.
Who is Home Reversion suitable for?
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.
What is the big disadvantage of a Home Reversion scheme?
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.
Why do insurers charge such high rates for Home Reversion schemes?
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.
8. Annuities (Immediate Need & Enhanced)
What is an Immediate Need Annuity?
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.
What other names are Immediate Need Annuities known as?
Immediate need care fee payment plans; immediate care plans.
How much would I pay upfront for an Immediate Need Annuity?
It depends on many factors:
- How ill you are.
- How old you are.
- How long you are expected to live for.
- How much annuity rates are currently.
- How expensive you think your care is going to be.
What add-ons exist to improve a normal Immediate Need Annuity?
- You can build an inflationary increase into the regular payment you receive.
- You can stipulate that, if you die early, your family will receive a proportion at least of the lump sum that you originally invested.
- For a cheaper deal, you can pay your lump sum and stipulate that the payments don’t start straight away.
Do add-ons to improve a normal Immediate Need Annuity come for free?
No. As with many financial products, flexibility and protection will cost you more.
Do I need an Immediate Need Annuity?
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).
What is an Enhanced Annuity?
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.
What else is an Enhanced Annuity known as?
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.
How does an Enhanced Annuity work?
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:
- You have a serious health problem, whether:
- A debilitating long-term illness.
- You smoke.
- You are seriously overweight.
9. Investment Bonds
What is an investment bond?
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.
How does an investment bond work?
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.)
Are investment bonds specifically designed to fund Long Term Care?
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.
What are the advantages of using investment bonds to fund Long Term Care?
- Industry expertise gets put to work making your money grow.
- The value of investment bonds is not usually taken into account in Local Authority Means Tests (according to the Money Advice Service).
- As part of a wider financial plan, investment bonds offer a valid form of diversification – a way, in other words of not putting all your eggs in one basket (but that’s not a pressing reason to invest in any product).
What are the disadvantages of using investment bonds to fund Long Term Care?
- You might need to get at your money (and any income it has generated) early – in which case, financial penalties may apply. Investment bonds are not worthwhile unless you are prepared to sit in for the long haul.
- You can lose the lump sum that you invest.
Is an “investment bond” a different type of “bond” from other bonds?
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:
- You can always rent your house out to pay for care in a Care Home. But it’s going to have to be an expensive house, bearing in mind that you’re going to be covering an absolute minimum of £500-600 a week in care home fees. And tax penalties may or may not be avoidable, even though the rental income is being used solely to fund care.
- Don’t think you can hide your money to qualify for Local Authority Funding. Local Authorities look out for what they call the “deliberate deprivation of assets” and are not fooled easily.
- Annuity rates have been falling since 2008 but are recovering from the all-time low they suffered in August 2016; the sharingpensions.co.uk benchmark annuity rate for February 2017 stands at £5,394 (for a £100,000 fund with the owner aged 65).
- So when it comes to the big question of long term care funding, if you don’t qualify for Local Authority Funding, you may qualify for NHS Continuing Healthcare (CHC). And if you don’t qualify for that, you may qualify for Registered Nursing Care Contribution. That’s just one thread in quite a tangle of funding options. Consider using a broker who – with an independent and professional eye – can lay out your options clearly.