How to pay for long-term care

As we get older, many of us will need help looking after ourselves. But what are the options when it comes to paying for long-term care?

Medical advances and changes in our jobs and lifestyles have contributed to a big increase in the number of people who’ll live to a ripe old age. But in those later years, many of us will need help looking after ourselves, either in our own home or perhaps eventually in a residential or nursing home.

Recent academic research suggests that in the next 20 years, the number of people aged 85 and over who need round-the-clock help with basic daily needs will nearly double. Given that care like this doesn’t come cheap, how should we (as individuals and as a society) pay for it?

What are the options?

One of the big challenges in thinking about paying for our own care is that we have no idea how much we might need. Many of us will face relatively modest costs, but some, especially those who spend years of their later life in residential care, could incur costs running into six figures.

For those who have very limited wealth, there will always be a state safety net, although this varies in different parts of the UK. Outside Scotland, help with social care is only available on a means-tested basis (where the amount of income and savings you have can affect your eligibility), and only to those with very limited assets and a high level of assessed needs.

If you live alone and then go into residential care, your local authority will take account of the value of your home when assessing how much you can afford to pay towards your care costs. For many people this will mean selling their home to pay for care. But it’s worth exploring the option of ‘deferred payments’ with your local authority, where the council initially pays your care costs and they’re eventually repaid (with interest) at the end of your period in care, when your home is finally sold.

In the past it was possible to buy an insurance product to cover yourself against the potential future costs of care, but the market for these products has almost disappeared. The one exception to this is a product that you can buy as you enter residential care, known as an ‘immediate needs annuity’.

The way these products work is that you hand over a relatively large lump sum (which can run into tens of thousands of pounds) and then the insurance company will pay your care costs for as long as you live. Although these products aren’t cheap, they do offer peace of mind that, if you do require a long stay in care, whatever costs you incur will be covered.

Changing the system

The government is currently tackling the care funding system and, as of October 2018, is planning to present a Green Paper with some new ideas, but it’s a difficult topic for politicians. During the 2017 General Election campaign, the manifesto put forward by the Conservative party included a proposal that more people should be expected to use part of the value of their family home to pay for care. But this was seen as controversial, and the policy was changed within days.

Royal London has contributed to this debate by suggesting that the government should encourage the creation of a ‘care pension’. This would be a new financial product that combined existing income drawdown in retirement with the ability to buy care insurance from the same fund. The premiums would be tax-free and people with these policies would then be confident that they could pass on the value of their family home to their children, without it being wiped out by care costs.

As life expectancy in the UK continues to rise, it’s important that public policy catches up so that we have a sustainable and fair care-funding system in the future.