Most of us prefer not to think about old age. Assuming we are not taken away early by a terminal illness or accident though, it is something we have to face up to and prepare for financially.
Before addressing the issues of later-life care, I should encourage you to do three things. First, put in place a lasting power of attorney (LPA). There are two sorts – financial and health. These will give your loved ones the authority to act on your behalf if you are incapacitated.
For an LPA to be valid you need to have capacity – be of sound mind – when you make it. So don’t wait until you need it. By then it is usually too late. The necessary documents can be found online. I recommend taking legal advice when completing an LPA, but it isn’t essential.
Next, ensure your will is written and up to date. A will makes life easier for your loved ones and ensures an estate is distributed as wished. Again, this needs to be done while you have capacity.
Finally, while you are in a sorting mood, check that you have completed ‘expression of wishes’ for any pensions and declarations of trust for any life policies, nominating who should receive any assets on death.
With these matters attended to, you can begin to think about the tricky issue of earmarking money for later life care. This is a contentious matter that politicians have repeatedly ducked. Remember the controversy it caused when Theresa May tried to include a ‘dementia tax’ within the Conservative manifesto in the 2017 election?
There are two issues here: life is unfair, and care is expensive. One person may have dementia and need care for several years; another may be perfectly active till late in life and then suddenly die of a stroke. So the costs of care fall unevenly. And those costs are heavy. Many people will initially try to get by with carers popping in a few times a week and eventually four times a day.
Good-quality carers can cost £20 an hour or more. You can easily pay £300-£400 a week (up to £21,000 a year) on care visits.
If you need to go to a home permanently, the costs typically start from £750 a week (£39,000 a year). If you don’t want to end up in a more basic home you may find yourself paying much more. I have one client in London who is paying £2,400 a week.
You must foot the bill if you have savings above £23,500. Your home is usually taken into account in this calculation, unless your partner still lives there.
Many people find this unfair. They desperately want to preserve an inheritance for their children. They believe later-life care should be delivered as part of the NHS and that they have paid for that through their taxes over a lifetime. Their children are often quite keen to preserve their inheritance, too!
But the brutal reality is that the amount most people pay in taxes doesn’t cover anything like the costs of the benefits they receive – education, NHS care, roads, defence, state pension. We need to find ways to properly fund this care. Perhaps if inheritance tax were ringfenced for this, people would not object so much to it.
Be very careful about giving away your house or savings to avoid paying for care costs. Under ‘deprivation of assets’ rules, if the authority judges you to have intentionally reduced your assets to avoid their inclusion in a financial assessment they may calculate your fees as if you still own them.
Be wary of special care insurance products, too. The criteria for payout can be stringent. Most products are designed as profit centres for insurance companies, notwithstanding the noble aim of spreading the claims of the few across the premium paying many.
So how much should you earmark for care? This is an impossible question to answer. The average time spent in a care home is two years. Check out the costs in your area and consider putting aside two years’ costs for each partner – invested to generate a real return.
Unavoidable pension income helps contribute to the cost of course. And in many cases, on moving into residential care the family home will be sold, too, freeing up additional capital for income generation.
Whatever you do, don’t go giving your wealth away without taking these costs into account. You don’t want to become dependent on your children – no matter how nice they are!
Ultimately, we need a system of pooled risk – one that allows people legitimately and without moral torment to preserve a fair proportion of their family wealth from the ravaging costs of losing the later-life care lottery. We need one that we contribute towards according to our means but which obviates the imperative to give away our homes and possessions to preserve an inheritance.
Before Brexit derailed any sensible political debate on this issue there was talk of an ‘absolute limit’ on what people must pay for care. Let us hope politicians revisit the question once Covid-19 is under control.
Figuring out later-life care
There are 11,300 care homes in the UK, housing 410,000 people. This is 4% of the population aged 65 and over, rising to 15% of those aged 85 and above. 167,000 people are receiving specialist dementia care in care homes – around 40% of the total care home population.
Further reading: Care costs – how to keep your home in the care crisis