Paying for Social Care Costs in the UK

With the myriad of things to save and invest for these days it's easy to forget about social care. I was reminded of this again in last Saturday's FT Money Section (12 Oct). And it links up with a Financial Adviser trade magazine piece I read in June, which was discussing the results of an FCA (Financial Conduct Authority) review into retirement income advice [1]:

"In our research published last year, we found firms were expanding beyond just advising on retirement income to offer a more holistic retirement planning service, including later-life care and financial coaching. The move towards a more goals-based planning approach certainly seems to be supported by the FCA review findings." (Richard Parkin, BNY Investments).

According to UK Government estimates, one-in-seven adults currently aged 65 will face lifetime social care costs of more than £100,000 [2]. The FT Money piece I referred to earlier quotes Tony Müdd at St. James' Place, who says that a nursing home place might cost as much as £3,000 a week, with total costs for the individual touching £200,000 - £250,000. As with everything else in life, costs vary according to where you live and will be higher in the South East of England. They also depend on the kind of medical condition/s one has or develops, with dementia or wider neurological care costs probably exceeding those for someone who has simple mobility issues, for example. Home help services are charged by the hour and will again depend on needs and location.

So, who has to pay for their own social care? The short answer is anybody with assets of over £23,250, which includes any equity in the individual's home. There is a sliding scale of contribution down to those with £14k of assets. Under that amount and your care is paid for by whoever you pay your Council Tax bill to. Which is one reason why so many councils are going bankrupt.

As with other financial matters, many people believe that the State pays for care home fees (they do, but only if you are being cared for in one of the few social care establishments which are run by the NHS) or that the family home is somehow a protected asset in this regard. It is not, and the local authority will put a charge on your house, meaning that the bill is only payable once the recipient of the social care package dies. But given the propensity for people to not speak of personal financial matters, some potential beneficiaries may be unaware that what they perceive to be their inheritance is already set aside to pay for care costs.

So what can an individual do to mitigate these costs? The first approach is a 'state of mind' one largely, where you simply accept that any equity in the house might be used to pay to care for you later. I guess this may be harder for people with children or other dependents they might wish to provide for. If you are concerned about 'losing' the house in this manner, you could give the house away now. But you could not remain living there. And if a court judged this move to be a 'deliberate deprivation of assets' the house would still be considered to be part of your assets.

I guess the second 'state of mind' approach is simply to ignore this unpleasant issue. Put it to the back of your mind. Focus on more immediate matters and repeat the mantra, "I will be in the 2/3 of people who do not need to pay for social care." Where this falls down is that in the absence of planning, the default option is that the unpleasant things you do not want to engage with will end up happening later.

With no specific social care insurance available in the UK, care home places are often funded by a 'lifetime' annuity which is purchased at the point at which you have to enter residential or nursing care. Others use equity release schemes which releases money from housing equity to pay for care as it is used.

For those of you who wish to engage with this matter in advance and have the means to do so, you should look at growing an investment pot of between £100,000 and £250,000 which could be used for care costs if it were needed. If not, it could form part of the inheritance which many are keen to leave for their children. Or perhaps a nice gift for your favourite charity, which could also help to reduce any inheritance tax bill. How you grow the pot will depend on your risk profile and personal circumstances: see a financial advisor.

Gavin Daker-White PhD, DipFA

References

[1] https://ifamagazine.com/navigating-fcas-thematic-review-of-retirement-income-advice-practical-tips-for-advisers-from-bny-investments-richard-parkin/

[2] https://www.kingsfund.org.uk/insight-and-analysis/data-and-charts/social-care-nutshell#costs-of-care