Long-Term Care: Finally There’s Some Better News

A squeeze on funding for care services for old people and increases in the cost of residential homes are putting an increasing strain on the elderly and their families.

As The Telegraph revealed last week, the Local Government Association (LGA) attacked the Government for increasing its funding for care for the elderly by just 15 per cent in the last 10 years, which has resulted in seven in 10 councils in England being forced to “ration” services.

The problem has been made worse because care home fees have risen by 33 per cent in the past five years alone, leaving many elderly people and their families struggling to meet the bills, according to figures published by Help the Aged last month.

But there is one ray of light for the 30 per cent of people requiring long-term care that Help the Aged estimates have to meet part or all of the cost themselves. The cost of care plans, which guarantee to pay out a fixed income to cover residential and nursing fees for the remainder of your life, have actually fallen in price.

Research by NHFA, a specialist IFA that deals with long term care funding, shows that the cost of a care plan to purchase £1,000 per month income has fallen in the last two years by almost 5 per cent from £48,782 to £46,471.

The reason for this fall in prices is in part down to higher interest rates. Care plans work in the same way annuities do, with the cost linked to the length of time that the insurance company thinks that you have left to live. As with annuity rates, terms for care plans become better value when the base rate goes up.

“This is really positive for older people needing care and their families. There has always been the emotional pull of on the one hand wanting to buy the best care possible but on the other not wishing to see an inheritance disappear,” says Philip Spiers, managing director of NFHA Care Fees Advice. “Combining advice on your full entitlement to State support with purchasing a care plan to meet the costs can be a solution that satisfies both.”

Care plans are a relatively new product that are currently only offered by a handful of providers – Axa PPP, GE Life and Partnership Assurance. The plus side of care plans, also known as “immediate needs annuities”, is that an individual going into a residential or nursing home can fix the cost of their care, effectively taking a bet with the insurance company as to how long they have left to live.

This means they have the peace of mind that they will not face the potentially stressful issue of moving to a cheaper care home if their money runs out in later years.

Another benefit is that these plans mean elderly people going into care can ringfence their care costs so that the rest of their assets can be passed on to their estate.

The downside is that if the person dies within a short time of going into care they will have lost out financially. The average life expectancy of a person going into a residential care home is three years, while for those going into a nursing home the figure is 18 months, according to the Commission for Social Care Inspection. But this is only an average and some people can live for years in a care home while others will die within months.

But not all insurers will offer you the same deal, so you should always speak to a specialist adviser to get the best terms available on the market. Spiers says he regularly sees variances of 50 per cent in the amount that providers quote for plans. “Back in 2001 I had a client with motor neurone disease who wanted to guarantee payments of £1,800 a month,” he says. “The worst quote we got was for £104,000 but the best deal was £25,000. This is definitely an area of financial advice where you need to speak to an IFA who knows what they are doing.”

Care plans are obviously not the only option on the market. In fact the market is best described as fledgling, and they should always be considered alongside other options of paying for retirement and nursing homes.

Currently 70,000 people sell their homes each year to cover the cost of long term care, while only 3,000 people a year take out these care plans.

Typical care plans will pay a fixed monthly income increasing at 5 per cent a year to cover inflation in care home fees. Current average prices for residential care homes are £398 a week, while nursing homes cost £570 a week.

“Care plan annuities should not be looked at in isolation,” says Owain Wright, head of care funding services at Saga. “You need to look at whether it is more appropriate to rent the elderly person’s property out to pay for the home, invest his or her assets to generate income to pay the fees or defer payment.”

Older people needing care who have capital of more than £12,250 (including the value of their home) have to contribute to the cost. Those with capital (including their home) of over £20,000 must pay the full cost of care, although homeowners can defer payment by getting the local authority to pay their fees and then put a charge on their property which is paid off when they die.

“Deferring in this way is effectively an interest free loan from the local authority,” says Wright. “But the downside with this approach is that you have no way of capping the costs that will be paid on care fees, unlike care plans.”

An expert adviser will also be able to make sure you are getting all the benefits you are entitled to both from local government and from the state.

The market for care plans is likely to expand as the numbers of those needing them continues to grow. The number of people aged over 65 expected to rise by 25 per cent and the number of over-85s by 38 per cent. Care plans can offer peace of mind and limit costs, but it is essential to make sure you get expert professional advice and look at the alternatives first.