The rising costs of care homes are a concerning reality for many. Whilst care home fees can be a controversial subject at best, recent analysis by insurance and pension provider Royal London shows a drastic difference in the average cost of care from one region to another.
According to UK based healthcare intelligence researcher LaingBuisson, an estimated 426,000 elderly and disabled people are in long-term residential care as of 2016.
This article shows the key findings of the report and investigates a number of options that many people face when paying for the price of long-term care.
What is the average cost?
The report, published on the 20th of March 2017, showed that the average cost of a residential care home stay ranges between £50,000 and £92,000 depending on the area. Scotland sits at the bottom of the table with an average cost of £50,050 whereas the South East nearly doubles this number at £92,266.
It is important to note that these averages are for residential care, not nursing care. The figures provided by Royal London are for the average duration of a care home stay, which, as of 2011 was two years and six months.
The analysis shows that living in what could be considered an ‘expensive area’, for example London, compared to say Scotland, isn’t the main driver of higher care fees.
The real surprise comes when the difference in care fees is compared to the average property values of those areas. For example, the average cost of care in London is £86,612, 18% of the average property price of £484,000. Those living in the North East face a much higher relative cost of £71,993 equal to 56% of the average property price of £128,631.
Debbie Kennedy, the Head of Protection Proposition Strategy at Royal London said: “For most people in later life, their family home is likely to be by far the largest asset on which they will need to draw to meet care costs. These figures are a shocking reminder of the huge costs which growing numbers of us will face if we need residential care later in life.”
How can you pay for care?
The Office for National Statistics shows that there are currently 6,000 centenarians in the UK, by 2050 that figure is predicted to rise to 56,000. Whilst many people strive for independence in their later years, the sad reality is that more people than ever are finding long-term care a necessity in their old age.
As the research shows, this doesn’t come cheaply. As of 2017, the most popular methods of paying for care are:
- Selling your house
- Using a pension, savings or investments
- Getting assistance from a local authority
Each option has its advantages and disadvantages, and there is no one size fits all approach. Everybody will have a different financial situation and advice should be taken if in doubt.
Selling your house
Selling your house, whether that be your primary residential home or investment property, is often a reliable way of freeing up a large sum of money to pay for care. It can though be a hard thing to accept, especially if you’d rather have it passed down to family members or maintain your independence and stay there yourself.
Selling a property isn’t always a quick process, therefore careful planning is needed to ensure you don’t act in haste to pay for care. To avoid this, many councils offer what is known as a deferred payment scheme; an agreement for people who have all or most of their capital tied up in a property. It means that a local authority will pay for the cost of care, with the amount being repaid when the house is eventually sold.
An alternative, of course, is renting your house out. This can work for some, but the practicalities of this need to be thought through. Becoming a landlord in your 70s, 80s or even 90s may not be a desirable option.
Using a pension income or savings
April 2015 saw a change to pensions, allowing more freedom in how they are used. For those aged 55 and above, the entire amount of your pension is now accessible, with the first 25% being tax free. Anything after that is taxed based on your income level, which means that using a pension pot, savings, or a combination of both to pay for long-term care could be a possibility for some.
People in need of care shouldn’t forget that the State Pension, if you are eligible, could provide an income that will contribute towards the cost.
Getting assistance from a local authority
Whilst some may be able to pay for the cost of care, be that from a house, a pension pot or savings, or a combination of them all, others may not be able to pay anything. For those unable to afford long-term care, a number of options do exist from local authorities.
People with limited means to pay for care can apply for help, and will be subject to a means test which assesses their financial situation. If you have under £23,250 in savings and assets, then you may be able to receive some funding towards a care home. Your home won’t be counted in the means test, providing that there is another occupant who fits the following criteria:
- A partner or former partner
- A relative who is aged 60 or over
- A child of yours under 18
- A relative who is disabled
The current funding limits at the time of writing this are part payments if you have between £14,250-£23,250 and full payment for anything under this. Everything is handled on a case by case basis, so you should contact your local authority directly to discuss the matter.
Another thing to bear in mind when receiving funding is the deprivation of assets clause, which prevents aid being given to people who sell a house or give capital away to avoid paying for their own care.
Will the price of care even out?
The so-called postcode lottery can apply to a lot of things in life, not all of them fair. Insurance prices, public service funding, education, energy bills and now even care have all been victim to drastic price differences. The report will come as a shock to many, and sheds light on how social care is being managed across the UK.
Steve Webb, Director of Policy at Royal London commented: “Successive governments have failed to grasp the nettle when it comes to care costs. For over twenty years we have had a series of Royal Commissions, expert reports and policy papers, but little has changed. The Government’s plans for yet another discussion document on social care later this year are far too slow. We need urgent action to address this funding challenge”.
With the cost of care firmly on people’s minds now more than ever, will the differences in prices start to even out? In the 2016 Budget, Philip Hammond announced that a report on the long-term funding of social care would be published later this year. Until then, the cost of care is very much still wedged apart by a significant difference of £42,000.