Adult social care is an important consideration to factor into your financial plan, but many people fail to do so or underestimate just how much it can cost.
Being inadequately prepared for care could mean you have to use a greater portion of your estate to cover the costs, which could have ramifications on the life of your partner or your future beneficiaries.
The Labour Party recently scrapped proposed care reforms that aimed to cap the lifetime cost of care and increase the asset threshold for state-funded support.
This decision could have far-reaching implications for your long-term financial security, as it leaves the current system unchanged, potentially requiring you to use a significant portion of your estate to cover later-life care expenses.
So, read on to discover how to adjust your financial plan to prepare for care costs.
The costs of adult social care could be significant, particularly now the reforms have been scrapped
In England, the NHS reports that care in 2024/25 costs on average:
- £20 an hour for home care
- £700 a week for residential care
- £850 a week for nursing care.
It’s important to remember that these are average costs. So, depending on where you live, the fees could be considerably higher.
As you can see, if you or your partner require care, these costs can quickly add up. A year in a nursing home could easily exceed £44,000 for one resident.
The proposed reforms to the English care system would have ensured that no one would pay more than £86,000 for care over their lifetime.
It also would have seen the “lower capital limit” – below which you don’t have to use your own assets to fund later-life care – raised from £14,250 to £20,000. The “upper capital limit” – above which you are entirely responsible for covering the costs of care – would have risen from £23,250 to £100,000.
If you had between the lower and upper capital limits, you would have been eligible for financial support on a sliding scale.
However, as these reforms have been scrapped, the upper capital limit will remain at its existing level for the foreseeable future. This means that until your total assets are worth less than £23,250, your estate will be drawn upon to pay for your care costs.
This could mean using your savings, selling your assets and investments, or releasing equity from your property.
So, without proper planning, the costs of care could significantly reduce the size of your estate, leaving you with considerably less to pass on to your loved ones.
A financial planner can help ensure you are prepared for the costs of adult social care
When it comes to covering the costs of care, there are a few ways a financial planner can help.
Evaluating immediate needs annuity options
In exchange for a single fee, an immediate needs annuity pays a monthly payment to your care provider for the rest of your life. They are often also index-linked and may rise in line with the cost of living.
How much your annuity costs depends on several factors including your age, income, and health.
By making a one-off payment, you can be sure of exactly how much of your estate will be used to pay for your care, giving you peace of mind that your loved ones and beneficiaries will still be supported by what’s left.
A financial planner can help you by comparing the annuities in the market and finding an appropriate plan. They can also work with you to assess whether such an annuity is likely to be a more cost-effective option than making the payments yourself.
Exploring asset gifting options
One of the key considerations when planning for care costs is how much of your estate will be left for your beneficiaries. If you remain in care for several years and release equity on your property, there may be little left for them when you die.
So, you might consider gifting your beneficiaries some of your assets while you are still alive to reduce the total size of your estate.
This would not only mean that less of your estate is used to cover your care costs but could also mitigate the amount of Inheritance Tax (IHT) your beneficiaries would be liable for.
A financial planner can work with you to assess how gifting assets could help your beneficiaries, and ensure less of your estate is used to pay for your care.
Using cashflow modelling
A financial planner can use cashflow modelling to help you map out various scenarios that consider the different potential costs of care.
The modelling can take into account your current and projected expenditure, your savings and investments, the rate of inflation, and your total assets.
By understanding your present and future spending patterns, your growth potential, and the costs associated with long-term care, you can have the confidence that you will be ready to cover future fees or find ways to adjust your budget to ensure you are prepared.
Offering advice on your property and financial affairs Lasting Power of Attorney
A property and financial affairs Lasting Power of Attorney (LPA) lets you nominate someone to manage your finances when you are no longer able, or when you decide you’d like to step back from this responsibility.
Registering this ahead of time can give you peace of mind as it can ensure your finances are well looked after in a manner you would have wanted.
A financial planner may be able to help you register an LPA, and they can also work with the nominated person (or people) to adjust your plan according to your wishes as your circumstances progress.
To speak to a financial planner, get in touch.
Email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients 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.
Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
The Financial Conduct Authority does not regulate estate planning, tax planning, cashflow planning, or Lasting Powers of Attorney.