80,000 can’t afford to pay for care

Most elderly people need help meeting the high cost of nursing care. We review the options.

How long would your money last if you needed nursing care? For 80,000 elderly people each year the answer is ”not long enough”, as their wealth is rapidly depleted, forcing them to fall back on often inferior local authority care. In many cases this will mean a forced move to a cheaper residential home, or, if care is received at home, scaling back the level of service.

Given the high cost of nursing care, it is not hard to see why so many run out of funds each year. The average care home now costs more than £30,000 a year – more than the cost of a year’s education at Eton.

But, thanks to complex means tests, many people don’t get any help at all towards these costs. If you have assets of more than £23,250 – and in most cases this will include the value of any property owned – you will be deemed a “self-funder”, and left to arrange your own care.

Not all those who need care in later life go into a residential nursing home. An increasing number opt to have care in their own home. Here the value of your home won’t be counted against you, but costs can still be high.

Dean Mirfin, director of Key Retirement Solutions, which has just launched a care fees advice service, says: “Many people don’t know where to turn to for advice when a family member needs care, particularly if they don’t qualify for assistance.”

Around 165,000 people go into nursing care every year, while more than 180,000 pay for care in their own home. Figures on the numbers receiving care at home are sketchy – largely because many receive unpaid care from relatives, and this is not recorded in official statistics. But only a small proportion of these people seek advice on how best to fund future fees.

Such advice could prove invaluable. Mr Mirfin says: “In the first instance, an adviser should check that people are claiming the correct benefits.” Claiming help towards care fees is a notoriously complex process. Although your assets may be worth more than £23,250, you may still be entitled to some non-means tested help, depending on your medical needs. Attendance Allowance, for example, can be claimed by many receiving care at home, even if it is on an informal basis.

There are also other means-tested benefits – such as Pension Credit and Council Tax Benefit – which may still be paid to those who have to arrange their own care. Here, assessment is based on income and savings, but the value of any property owned is not taken into account.

An adviser should also be able to review current savings and investments, and see whether they can be managed effectively to help meet these costs. As Mr Mirfin points out: “Initially, it may look like families have to find upwards of £2,000 a month to pay for care. But in some cases, if people find there are benefits they are not claiming, and savings and investments that can be utilised, this funding shortfall may be significantly less.”

The only way most people can meet these costs over the longer term is to use the value tied up in their house. One option is an equity release mortgage. Rather than sell the home, a loan is taken out against its value, and the capital and interest owed is repaid when the property is sold – usually when the home owner dies.

On a pound-for-pound basis, this may look less attractive than simply selling up, as interest will accrue on the sum borrowed. However, it can be a useful means of paying for care for those who want to remain in their own home.

Mr Mirfin said: “We are seeing people take out these plans to ‘top-up’ local authority care. The local authority might pay for two hours’ care a day, but these schemes can be used to pay for another couple of hours of care.”

He said: “Up to 84 per cent of pensioners say they would prefer to receive care in their own home, but few seek out guidance and advice on how best to fund this, either in the short or long term.”

The other main option is to invest in an “immediate needs annuity”. These are expensive, typically costing tens of thousands of pounds, as they guarantee to pay a fixed monthly sum for life, which can increase with inflation. But failing to seek advice early may mean there are insufficient funds left to buy an annuity at a later date.

The disadvantage is that they will prove poor value if you die shortly after buying the annuity. But the reverse is also true: those who go on to live for many more years will gain more than they pay out.

Chris Horlick, of the specialist insurers Partnership, said: “With an annuity, fees are effectively capped. People know what they have to pay for upfront, and any capital above this is preserved.” But he says the main reason people opt for an annuity is to ensure they can continue paying for the best care possible. “They know that the money is not going to run out and they won’t be shunted back into local authority accommodation simply because they have run out of money.”

The recent scandal surrounding the care home provider Southern Cross – which had a disproportionate number of local authority-funded residents – has highlighted the problems in our care system.

Mr Horlick added: “A decade ago people wanted to know what they could do to avoid paying care fees. Now people recognise that if they can meet these fees themselves they have far more choice and control over the quality and type of care given.”