The Dangers of Neglecting Future Care Costs

One can reasonably argue that the huge gap between public funding of social care and the growing demands of an older population will become even bigger and more unbridgeable in the next few decades.

While most people save for a pension to ensure a good retirement, it is a shocking reality that only a few are ready for the possible huge care costs in their old age. In fact, for some people who need long-term care, the cost can be very high, even with the presence of (limited) state support.

The system for those who need help with care costs has changed several times in the last 20 years as people have been living longer.

Most recently, from October 2023, the government introduced changes to the social care system in England which included setting a limit of £86,000 to the lifetime cost of personal care. This new limit is called the social care cap.

The new social care cap was supposed to start in October 2023, but the government pushed it back to October 2025. Until then, the old funding rules still apply. This means that you will not get any help with the cost of care from your local council if you have more than £23,250 in savings, which is called the upper capital limit, a number that will go up to £100,000 from October 2025.

You will also not get any support if you have your own property, but this only applies if you are moving into a care home.

If your assets are below £14,250, the local authority will pay for your care costs, but any income you have will also count as a part of your care fees. This lower capital limit (LCL) threshold will also go up to £20,000, from the current £14,250.

So, at first sight, the social care cap of £86,000 seems like a fair government promise to limit the amount of money people have to pay for their long-term care. You might think (as many people do) that once you have spent £86,000 of your own money, your local authority will take care of your care costs. But the truth is, some people will have to pay much more than £86,000 to get care.

Why is that? Basically, it’s because not everything you pay for care will go towards the cap.

The cost of personal care, which includes help with essential daily activities like washing, feeding, or dressing, are counted as personal care costs, but there are many other costs that are not. For example, the costs of a room in a care home, and the fees for food, cleaning and heating are not part of the cap because they are called ‘hotel costs’, even though they make up a big part of care home costs.

You only need to spend a little time browsing the internet to find a lot of reactions from people to the rising later life care costs, which are honestly, from the ignorant to the shocking.

According to some surveys after the pandemic, including a ‘Prepare for Care’ report published in February 2023 by the Association of British Insurers (ABI), about 85% of UK adults have not planned to pay for the cost of care, even though most people who will need later life care have to pay for it themselves, at least partly.

In fact, more than half of the people who took part in these surveys think their state pension, which is now a maximum of £ 203.85 a week (going up to £221.17 from April 2024), is the most likely source of income for paying care costs. But it is important to note that average weekly care home fees are now more than £750; if nursing care is needed, the cost goes up to more than £900pw.

As more surveys have been published, so have more proposals. One ABI survey ended with some smart proposals, from making a ‘Care ISA’, to giving tax relief on pension income that could be used to pay for care costs. Most proposals, though reasonable, need legislation to become law before they can be used, but there is one option that already exists.

Homeowners who are 55 or older may want to think about releasing equity from their home, to protect themselves against future care costs. “Without needing any government help through tax incentives, this proposal could be possible…now,” the ABI said.

According to the newest yearly figures, homeowners already take out more than £40 million from their homes to pay for care costs, a level that shows that many people have been smart enough to see a possible future problem and done something about it.

Equity release is not a simple solution, nor is it the only way to pay for care costs, but the process is already there; in other words, homeowners do not have to wait for new legislation to take out a tax-free lump sum from their homes and use the money however they want.

A qualified equity release adviser can help you understand the pros and cons of releasing equity from your home. It is wise to consult with one before you proceed further.

You should also seek the advice of a qualified care fees expert who can work with the equity release adviser to devise a suitable care plan for you, considering any government support that is available.

The rising cost of care, whether at home or in a care home, is no longer a hidden issue; it has been recognised by everyone.

As a result, governments around the world acknowledge that as their populations get older, the demand for senior healthcare will increase, while the amount of public funding is limited. This means that, in the UK at least, equity release will likely become more important as a potential source of funding for care.