The following information is provided by Schroders Personal Wealth
What could be better than living later life to the full, confident you can rely on the level of care you need every day? As a customer of care you need to be clear on your financial situation and the funding options open to you.
Care in the UK is means tested. If your assets are below the means test limit then you may be entitled to some state funding of your care. If your assets are above the means test then you will have to meet the cost of your care yourself, which means you are a 'self-funder'.
The means test figures are different in the four home nations:
N. Ireland: £23,250
If you are paying for your own care then you will almost certainly be entitled to one or more state benefits. If you are receiving your care at home or in a residential home it is likely to be Attendance Allowance. If you are receiving nursing care then you will probably also be entitled to Funded Nursing Care (also known as The Nursing Contribution).
There are three main criteria to determine eligibility:
There are two possible payment amounts under Attendance Allowance:
Lower rate: £60 per week
Higher rate: £89.60 per week
In order to be eligible for the higher rate you must be able to show that the you need help and assistance during the night as well as the day.
If the state starts contributing towards your care costs at any point then the Attendance Allowance payments will usually stop.
In the UK, nursing care is paid for by the NHS and this is still the case if you go into a Nursing Home. The matron/manager of the nursing home will usually assess whether nursing care is required and, if it is, they will make an application to the NHS for FNC to be paid.
The amount is paid directly to the nursing home rather than to you and it should then be deducted from the overall gross fees.
The FNC varies depending on which of the four home nations you live in:
England: £187.60 per week
Scotland: £87 per week for nursing care and/or £193.50 for personal care
Wales: £179.97 per week
N/Ireland: £100.00 per week
Please note that FNC is almost never paid if you are in a residential home.
The good news is that there are really only six different ways of paying for care. The bad news however, is that there is no one way which is the right way for everyone. It’s therefore important to fully understand how each option might work and what the pros and cons are.
The first three options usually involve you keeping your property and using it in some way to generate the income that you need to meet the shortfall.
This is essentially a loan from your local authority. If your savings are below the means test limit then you can apply to your local authority and ask them if they will lend under this scheme. Please note that they may not necessarily agree to lend.
If they do agree then they will make a contribution towards the care fees and for every pound that they contribute there will be a pound of debt (or mortgage) on the property. When you die the loan plus interest has to be repaid to the local authority.
If you are going to keep the property then in most cases you will have to rent it out so that it is contributing some income towards the care fees. Do be careful to estimate accurately what the net income will be as it is often not as much as you think it will be once all of the costs (management fees, tax, repairs, insurance) are deducted.
And of course, do bear in mind that it can be quite hard work dealing with tenants.
With Equity Release you are borrowing money from a commercial lender. Usually you won’t make any repayments but, on your death, the loan plus all the accrued interest will need to be repaid.
If you are considering Equity Release you should probably look into the cost of a care fee annuity (see point 6 in this section) as this may help you to limit the amount of capital that you need to borrow.
The next three options usually involve selling your property, although this may not always be necessary where there is quite a high level of savings:
A lot of families, having sold the house, will simply put the sale proceeds in the bank and leave it there. Do be careful though. Because interest rates are at an all-time global low you are unlikely to generate much income. For example, leaving £300,000 in the bank at a net interest rate of 1% will only provide income of £3,000 p.a.
This simply involves trying to make the capital work a bit harder and provide a bit more income.
For most families it’s not usually advisable to take much in the way of investment risk which means sticking with safer, lower risk investments.
A Care Fee Annuity involves you buying a lifetime income that you can use to meet the shortfall.
So in principle you could use some of the available capital to buy the annuity which will then largely solve the care funding problem and, as the same time, help to protect the remaining capital. The first step with the annuity is to find out how much it will cost in your circumstances.
As a very rough rule of thumb the average cost of the annuity is around four times the annual income that you require.
Further help is available from our trusted partner, Schroders Wealth Management.
Some people who are funding their own care may be entitled to some assistance. In this article we look at how the NHS may contribute to your healthcare funding.
Click here to read the full article
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