A third of people think their parents will need to pay for care later in life but many fear they lack the means to afford it.
Although 45 per cent believe their parents have sufficient savings, almost a third expect to sell the family home to cover the costs, says a survey from Hargreaves Lansdown.
The average cost of staying at a care home is £848 a week, according to separate research, although this varies dramatically across the country.
Funding changes promised: The Government has delayed announcing social care reform plans promised in the Conservative election manifesto
At the extremes, prices can range from £1,488 a week in Islington in London to £621 in Blaenau Gwent in Wales.
A different study by BUPA found that one in 10 people admitted to a nursing home, with an average annual care home cost of £44,000, will still be alive after six years.
This could mean a total cost of over £260,000, without even taking into account annual increases in care costs.
Sarah Coles, personal finance analyst at Hargreaves Lansdown said: ‘This cost is higher than most people imagine.
‘If you’re in a more expensive part of the country or you have complex needs, you can easily spend £1,000 a week.
‘A few hours of care at home each week can be much less expensive, but if you need live-in care, costs are between £1,000 and £2,000 a week.
‘While people’s savings may well cover a few hours of care in their home, most people would struggle to pay £50,000 or £100,000 a year.’
Roughly one in ten people believe they will have to pay for their parents’ care themselves, according to the research from Hargreaves.
‘Given the costs that can be involved, this is an enormous commitment,’ said Coles.
‘Covering the cost of care is difficult enough if you’ve planned for it, but if it comes out of the blue, it can be even more challenging.
High bills: Full time live-in care costs are typically between £1,000 and £2,000 a week.
‘That’s why, even if you’re confident your parents will remain independent for life, unless you’ve made a specific plan to care for them in some other way, it’s worth considering what would happen if they needed help.
‘Even when someone is fit, healthy and fiercely independent, it doesn’t mean they’ll always be able to take care of themselves.’
A further one in ten people say the council would have to cover the cost for their parents, the Hargreaves survey found.
In England, if you have assets of less than £14,250, the council may pay for care – although it will also take your income into account.
It will do a needs assessment, and a means test to check your assets, and if you qualify on both counts it will arrange the level of care it decides you need.
If you’re getting care at home, or only going into a home temporarily, the means test will not include your home.
How is care paid for at present?
Under the current system someone’s assets – including the family home – are depleted down to £23,250 if they need to go into a care home.
If you need care in your own home, your assets must be depleted to a level set by your local council, which cannot be lower than £23,250, but your home is excluded from this means test.
If you’re going into a care home permanently, it may include the home, unless someone from specific groups also lives there, including your partner, any of your children under the age of 18, or a relative who is disabled or over the age of 60.
If you have between £14,250 and £23,250 you will have to contribute to the cost of care, but if you have assets over £23,250, you’ll need to foot the entire bill.
The study also found that those aged 55 or above were much less inclined to say their parents will need paid-for care, whilst those who do are less likely to think their parents can pay for care with their savings and more likely to think they’ll have to sell their home.
‘This owes something to that fact that some people in this age group may decide that if their parent needs care, they’re at a stage in their life where they can provide it – especially if they have retired,’ said Coles.
‘Unfortunately, it also comes down to the fact that reality has often sunk in, and they realise the cost of professional help.’
How to pay for care?
Putting aside a pot of money for potential care needs is one option, but the difficulty here is that most people will never need it whilst others will need hundreds of thousands of pounds.
But other than saving for a potential disaster there are other options to consider.
A guaranteed monthly pension income will go towards the cost of care and if your parents have accessed their pension under the freedom reforms they may have money in this pot that can be used too.
‘For this to be effective, you need enough left in the pot to cover care costs, which is possible if you live off the income produced by the investments – typically around 4 per cent – without dipping into the lump sum,’ says Coles.
‘If you never need this money to pay for care, you may be able to leave whatever is in your pension to your family without paying inheritance tax.’
2) Selling or letting your property
Often the value of the property will need to be used in some way – the most obvious examples being selling or renting out the property.
More than 17,000 pensioners were forced to sell homes to pay for social care in 2019, research by This is Money’s sister publication Money Mail recently revealed.
The Government has delayed announcing social care reform plans promised in the Conservative election manifesto in late 2019.
This offered a ‘guarantee’ that no one needing care will have to sell their home to pay for it.
But whilst this promise remains unfulfilled, selling the family home will often seem like the most sensible option for many people.
Another consideration could be to let the family home, allowing the rental income to cover the care costs.
However, this may not always be workable because rental income can be depleted by income tax, letting agent fees, void periods as well as maintenance and repair costs, meaning it may end up being insufficient to cover the care fees.
3) Equity release
Equity release is another option that can help free up some capital in the property – though it is not without risks.
Equity release unlocks the value built up in your home, allowing you to access it in the form of tax-free cash.
The money can then be used to cover professional care costs and be repaid through the sale of your property when you pass away.
‘This is expensive,’ says Coles. ‘There will be a set-up cost, and usually any interest on the loan will roll up and needs to repaid when the property is sold. The longer you live, the more the interest will cost.’
4) Deferred payment arrangement
A deferred payment arrangement with the local council becomes an option once your savings, excluding your home, have dropped below the threshold at which you will be required to pay for care.
This allows you to defer or delay paying some of the costs of your care until a later date although the costs deferred must be fully repaid in the future.
The council adds up the care fees payable during your life, and then after your death your family can sell the house and repay the debt – along with any set-up fee and interest.
Councils tend to charge less interest than equity release, so this could be a cheaper option in the long run. Read more here on applying for a DPA.
5) Medical needs
If a parent has complex medical needs, it would be worth getting assessed for NHS Continuing Healthcare.
‘This can pay for all their care in some cases, and can be incredibly valuable, so make sure you check with the GP,’ says Coles.
‘However, don’t assume they’ll qualify, as the NHS will go through a rigorous assessment process first, to decide whether your medical needs are complex enough to require NHS care.
‘It’s not enough to have caring needs, you’ll have to have very high medical needs too, requiring regular intervention from medical experts and professionals.
‘You’ll also have to able to demonstrate potential harm if you don’t get the care you need.’ Read a guide to applying for HNHS CHC here, and how to appeal if you are rejected here.
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