Recent figures from the Office for National Statistics (ONS) suggest that the average cost of a UK care home is rising.
As the cost of living crisis developed (from late 2021) nursing home fees began to increase. Between March 2022 and March 2023, they shot up 10% and are expected to continue rising.
Contemplating your vulnerability isn’t easy, but later-life care should form a key part of your long-term plans. Putting this financial protection in place now means that funds will be there if you need them, with a contingency in place if you don’t.
Keep reading to find out how to factor care costs into your retirement planning now, without going broke in the present and while staying on track to your future dream retirement.
Increased longevity means mitigating the potential cost of care in later life is a vital part of your long-term plan
ONS figures confirm that in 2019, life expectancy at birth in England and Wales was 79.8 years for males and 83.5 for females (these figures fell slightly in 2020 reflecting increased mortality during the height of the coronavirus pandemic).
During the next 50 years, life expectancy at birth is expected to increase for males and females, by more than five and six years respectively.
A recent Health Foundation report, too, suggests that life expectancy is likely to increase further. But, while greater longevity is good news, the average age from which we can expect to live with a major illness is projected to stay about the same, at around 70. Or, to put it another way, we’ll be living longer but spending more time in ill health.
This will only add to the already huge strain on the social care sector, already exacerbated by a delay to the government’s social care reforms, originally announced by Boris Johnson. The chancellor used his 2022 Autumn Statement to push these reforms back to October 2025, after the latest possible date for the next general election.
Average nursing home fees are now more than £60,000 a year
Between March 2022 and March 2023 nursing home fees increased by £107.21 to £1,176.20 a week. That’s a massive £61,162.40 a year.
Understanding that you could be hit with these costs in later life is an important first step to getting financially prepared.
You’ll need to think carefully about the different types of care you might need and the costs of each option. These can vary significantly depending on whether you receive care in your home, for example, or even where you live in the country.
Be sure to talk to relatives to see what level of support they might be able to offer. Relatives nearby might be willing to help with some of your day-to-day needs, thereby reducing your costs.
Your research might go as far as looking at local care homes you’d be happy to move into and that have the range of services you expect to need.
This can help you begin thinking about your potential care budget and the amount of money you’ll need to put aside.
Factoring the potential cost of later-life care into your retirement plans
Later-life care costs, like the other financial protections you have in place (from life insurance to your will and Lasting Power of Attorney), aren’t something to think about only later in life.
Your care fund shouldn’t be a one-off lump sum to find only when you need it, but an ongoing strategy that is factored into your long-term plans from as early as possible.
An important part of budgeting is paying your future self first, and this includes potential care fees.
Your retirement income is likely to come from many sources so consider taking this holistic approach to care too. You might put money into savings, investments, or your pension, so it is there when you need it.
Current pension rules (especially in light of recent changes to the Annual Allowance and the imminent abolition of the Lifetime Allowance) might make your pensions a perfect place to keep money intended for care.
Unused pension pots remain outside of your estate for Inheritance Tax (IHT) purposes so holding off on drawing a particular pot could be a great way to keep care cost funds separate and tax-efficient. You’ll have peace of mind that the money is there if you need it, and if you don’t, you can pass it to your chosen beneficiary tax-efficiently, and even tax-free in some circumstances.
Generally, on death before the age of 75, your unused pension fund can be passed to your chosen beneficiary, tax-free. While on death after age 75, your beneficiary will pay tax on the funds they receive, at the highest rate of tax they pay.
This is just one way you might opt to save for later-life care fees, but long-term planning, and the help of a team of finance professionals can help you find the right solution for you.
Get in touch
If you worry about whether you have enough to fund your potential care in later life, we can help. Please get in touch via email at enquiries@hda-ifa.co.uk or call 01242 514563.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
