Long term care is a thorny financial issue for individuals and governments, with strains on the services available and potential for huge financial burdens on families whose loved ones require care. The challenge for successive governments has been to introduce and implement a social care plan.
The government has recently announced an increase of 1.25% to National Insurance rates from April 2022, which will then continue as a Health and Social Care Levy from April 2023 to help to fund long term care and health costs. Income Tax on dividend income will also increase by 1.25% from April 2022.
What financial support is available?
Local Authorities can offer financial support for funding for care, but it is mostly means tested and as such the level of support you receive will depend on your personal savings and income.
The current rules are as follows:
If you exceed the lower savings threshold, you are expected to pay towards the care costs, and if your assets exceed the upper savings threshold you are expected to pay the full cost of care.
What changes are being introduced?
The government has announced an overhaul to the long term care system which will apply to anyone entering care from October 2023 and these changes will apply to England only, as the devolved nations of Northern Ireland, Scotland and Wales each have their own different care funding arrangements.
The main features are:
• The capital limit above which an individual must meet all their care costs (until the cap is reached) will rise from the current £23,250 to £100,000.
• The lower savings threshold, below which individuals are not required to use savings or the value of their home to meet care costs, will also rise from £14,250 to £20,000.
• Between those two limits, individuals will be expected to make an ‘income tariff’ contribution from that capital, which the government says will be “no more than 20%”. For example, if you have £70,000 of capital, you could have to contribute £10,000 in the first year, calculated as 20% of £50,000, the difference between the capital £70,000 and the lower savings threshold £20,000.
• There will be a cap of £86,000 on the total care costs, which will be increased in line with inflation each year. However, this cap only applies to personal care costs, not the ‘hotel costs’ of care (accommodation, food, etc.).
These proposals may help some families to save hundreds of thousands of pounds, if care recipients live long enough to reach the £86,000 cap. Many of us will need long term care ourselves or for family members, so it is becoming a key part of financial planning.
If your need for care is immediate, it is advisable to check whether you are entitled to any State Benefits or support from your Local Authority before reviewing the options for self-funded care. Your Local Authority will disregard your property value for the first 12 weeks of required care; this is to allow you to plan before making any final decisions about how to fund your future care.
How can you fund long term care costs?
In addition to using your income, savings and investments, you can provide funds for long term care by purchasing;
1. a pre-funded long term care insurance, which will pay out a sum which is predetermined when you take out the policy, should you ever need care.
2. an immediate needs annuity or immediate care annuity which is bought when you need or will shortly need care.
Helping you to be prepared
For many of our clients, it is important to be able to fund their care without being a burden to their families.
How can our advice services help?
Your financial adviser can really add value to you and your family, as they will be able to navigate the complex rules and implement efficient planning to help meet your objectives. We can help you to make the best use of your income, savings and assets, particularly if you own your home and ensure that all care-funding options are carefully considered. We can also identify other benefits available which can also help towards the ongoing costs.
This article is intended to be for information only and should not be taken as financial advice.
Origen Private Client Solutions is a trading name used by Origen Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. Our FCA registration Number is 192666. Our Registered office is: Ascent 4, Gladiator Way, Farnborough, Hampshire GU14 6XN and registration number is: 03926629.
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