Why you shouldn’t rely on the government for the cost of your later-life care


Young, kind care worker brings an elderly man his foodMost people will make specific financial plans and preparations for their retirement. Whether you want to travel the world, downsize your home, or turn a hobby into a source of income, you will likely need a financial plan in place to do so.

But many people don’t consider the costs of later-life care when looking towards retirement. Any care you may need could work out to be quite expensive, especially when you have a finite amount of money to rely on.

Recently, the government announced the introduction of an £86,000 limit on care costs that will take effect in October 2023. This new policy sounds great, but may not be quite what you expect.

Why is that the case, and what should you prepare for in your retirement? Read on to find out more.

Care costs for the retired can be remarkably high

In early September 2021, the government announced the introduction of an £86,000 care cap for those in retirement, starting in 2023. This essentially limits the amount that an individual will have to spend on care in their lifetime.

One of the goals of this cap is to prevent the current trend of the older generation needing to sell their homes to pay for care costs. On the surface, it appears to be a fantastic method to lighten the financial load on the oldest in society, especially as care costs can be difficult to plan for.

These care costs can end up being very high, especially if you need to move out of your residence and into a care home. In fact, The Conversation report that one in seven older people could incur care costs of more than £100,000 in their lifetime.

Plus, as the average life expectancy increases, the longer people must support themselves into retirement. This means that care costs could continue to get higher as people need care for a much longer time period.

A 2018 study from the London School of Economics predicted that the number of over-85s needing 24-hour care could double between 2018 and 2035. It is entirely possible that, with the unknown long-term effects of the Covid-19 virus, this number could now be even higher.

As such, it’s worth preparing yourself for such a situation, but you shouldn’t rely on the government care cap to bail you out.

The care cap does not cover a lot of potential charges

You should be aware that the new care cap only covers what is considered “personal care”. This means that the care cap does not cover daily living costs, such as food, bills, or accommodation.

Given that carehome.co.uk report that, as of September 2021, the average cost of care homes in the UK is more than £36,000 a year, the costs of living in a care home for an extended period can soon mount up. This cost rises to a little over £46,000 a year if you move into a nursing home.

Depending on where you live, these prices could vary dramatically. For example, the Which? “cost of care” checker predicts that the average amount you would pay moving into a residential care home in East Sussex could be at least £10,000 a year more than in Newcastle upon Tyne.

Some care costs will be covered if your estate is worth less than £100,000

The current rules mean that if you have more than £23,250 in your estate, you must pay for all later-life care yourself. This is changing with the introduction of the care cap. From October 2023, the amount you’ll pay yourself will depend on the worth of your estate.

Anyone who owns assets between £20,000 and £100,000 will have some of their care costs paid for them, on a sliding scale. The amount they pay will depend on how much their local authority typically contributes.

If your estate totals more than £100,000, you will be fully responsible for paying your care costs.

This means that until your estate is worth less than £20,000, you will be paying for at least some of your care.

High care costs could eat into your inheritance

If you own your own home, your estate is likely to be worth more than £100,000. If this is the case, you will be responsible for covering the cost of any care.

If you’re planning on leaving your family a sizeable inheritance, then you need to be prepared for these costs. However, bear in mind that everyone’s care needs are different, and some people may never require care in their lifetime.

Care can come in many forms. Perhaps you’re still living at home but have a carer visit once or twice a week, or maybe all you need is your meals to be delivered to your door.

No matter your situation, if you are unprepared to cover the expenses, you may be stuck with an unexpected bill that takes away from what you wanted to give to your loved ones.

Effective planning is essential for later-life financial management

Everyday life can come with surprises, and not all of them are positive. Unexpected payments need to be prepared for now, and in later life too. Ensuring that you can pay any financial shocks is key, especially if you’re trying to save for care.

Working with a financial planner is one way to effectively plan for the possibility of care costs. A planner can help you to put enough away in the event of requiring care, all while ensuring that you have enough left over to leave your desired inheritance to your loved ones.

Get in touch

If you’d like benefit from the work of a financial planner and successfully prepare for the cost of later-life care, please email info@investmentsense.co.uk or call 0115 933 8433.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

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.