At a glance

  • We're living for longer, and the cost of care is rising
  • In England, if your assets including property and savings are worth more than £23,250, you will have to pay for your own care
  • Options to help pay for care costs include releasing equity, buying a special type of annuity and downsizing
  • Paying as much as you can into your pension, as early as possible, is one of the best ways to prepare for the post-retirement period

At a glance

  • We're living for longer, and the cost of care is rising
  • In England, if your assets including property and savings are worth more than £23,250, you will have to pay for your own care
  • Options to help pay for care costs include releasing equity, buying a special type of annuity and downsizing
  • Paying as much as you can into your pension, as early as possible, is one of the best ways to prepare for the post-retirement period

At a glance

  • We're living for longer, and the cost of care is rising
  • In England, if your assets including property and savings are worth more than £23,250, you will have to pay for your own care
  • Options to help pay for care costs include releasing equity, buying a special type of annuity and downsizing
  • Paying as much as you can into your pension, as early as possible, is one of the best ways to prepare for the post-retirement period

Increases in longevity mean many people can now expect to spend decades – rather than years – in retirement. It's therefore important to plan for your later life, including how you will cover the cost of care.

According to analysis by think tank the Centre for Economics and Business Research (CEBR), employees should be saving an average of £574 more a month into their pensions to meet rising care costs.1

Nursing home costs are projected to rise to an average of £54,375 a year over the next decade, while care homes will cost £39,124, according to CEBR. Meanwhile, rising life expectancy means that these costs will need to be met for a longer period. Women can expect to live to an average 82.9 years, compared with 79.2 years for men.2

Here, we look at the best ways to plan for retirement and options for financing long-term care.

Who pays for care costs?

Whether you pay for care yourself or not is down to a means test, conducted by local authorities. The council assesses your assets, such as your property, savings, and income.

At present, if your assets, including property and savings, are worth more than £23,250, you pay for your own care. These thresholds are £28,000 in Scotland, and £50,000 in Wales.3 If your assets are less than this, you are entitled to help from your council.

Beware of giving away or selling your house to reduce your assets as a means of seeking help with care costs. This could be deemed a ‘deprivation of assets’, or intentionally getting rid of your assets to meet the means test.

Jane Curtis, Chair of think tank the Centre for the Modern Family, says: “Our research shows that an over-reliance on relatives and the state could put families in serious financial difficulty.

“It can seem difficult to know how to prepare for the future, but to avoid a financial care crisis we all need to have an honest discussion on later-life care as early as possible so no one is left footing a bill they can’t afford.”

How to fund care

The care funding system can seem complex, but there are options available to prepare for future care needs. According to Curtis, preparing for care “needs to become as inherent as paying off a mortgage, saving into a pension, putting money into an ISA, or making a will”.

Here are some of your options:

Equity release

You could access money tied up in your property to fund care costs. There are various plans, however, and you should seek expert advice before opting for equity release.

A lifetime mortgage enables you to take out a loan that is secured against your property. However, you don’t make monthly repayments. The interest on your loan rolls up over your lifetime and is repaid when the property is sold, or you die.

This is a lifetime mortgage. To understand the features and risks associated with this type of mortgage, you must ask for a personalised illustration.

Downsizing

A popular option as a means of funding care costs is moving to a cheaper property to release funds. This way, you avoid paying interest on any debt, and access a chunk of equity. This may also provide the opportunity to reduce day-to-day running costs, easing cash flow in retirement.

Annuities

An annuity is a financial product that you can buy to provide you with an income, and they come in different forms. For example, you can buy an immediate-needs annuity with a lump sum. This is essentially a type of insurance policy that provides a regular income to pay for care.

You buy this type of annuity when you need care, and it will pay a tax-free income to the care provider. This type of annuity is aimed at plugging any gap between your income and the cost of care. How much you pay depends on your health and your life expectancy.

But while an annuity provides security that care costs will be met, you could get back less than you put in if you stop requiring care, for example.

Pay into your pension now

Starting to pay into a pension as soon as possible, or boosting your contributions, is one way to prepare for the cost of old age. The more time you give your pension contributions to grow in value, the better. Don’t think you can rely on the State Pension – as of the 2020/21 tax year, this amounts to just over £175 a week.

Ensure that you join your workplace pension scheme. You benefit from your employer’s contributions, and government tax relief.

If you can save more, you could consider a personal pension plan, such as a self-invested personal pension (SIPP). Plenty of investment managers offer ready-made, simple solutions for you to invest towards retirement.

Remember, long-term saving isn’t just about pensions – you may have money tied up in property or other savings and investments, such as ISAs, that will eventually contribute towards your retirement income.

Combining your lifetime’s savings and investments to form an income may help towards the cost of care in the future.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Increases in longevity mean many people can now expect to spend decades – rather than years – in retirement. It's therefore important to plan for your later life, including how you will cover the cost of care.

According to analysis by think tank the Centre for Economics and Business Research (CEBR), employees should be saving an average of £574 more a month into their pensions to meet rising care costs.1

Nursing home costs are projected to rise to an average of £54,375 a year over the next decade, while care homes will cost £39,124, according to CEBR. Meanwhile, rising life expectancy means that these costs will need to be met for a longer period. Women can expect to live to an average 82.9 years, compared with 79.2 years for men.2

Here, we look at the best ways to plan for retirement and options for financing long-term care.

Who pays for care costs?

Whether you pay for care yourself or not is down to a means test, conducted by local authorities. The council assesses your assets, such as your property, savings, and income.

At present, if your assets, including property and savings, are worth more than £23,250, you pay for your own care. These thresholds are £28,000 in Scotland, and £50,000 in Wales.3 If your assets are less than this, you are entitled to help from your council.

Beware of giving away or selling your house to reduce your assets as a means of seeking help with care costs. This could be deemed a ‘deprivation of assets’, or intentionally getting rid of your assets to meet the means test.

Jane Curtis, Chair of think tank the Centre for the Modern Family, says: “Our research shows that an over-reliance on relatives and the state could put families in serious financial difficulty.

“It can seem difficult to know how to prepare for the future, but to avoid a financial care crisis we all need to have an honest discussion on later-life care as early as possible so no one is left footing a bill they can’t afford.”

How to fund care

The care funding system can seem complex, but there are options available to prepare for future care needs. According to Curtis, preparing for care “needs to become as inherent as paying off a mortgage, saving into a pension, putting money into an ISA, or making a will”.

Here are some of your options:

Equity release

You could access money tied up in your property to fund care costs. There are various plans, however, and you should seek expert advice before opting for equity release.

A lifetime mortgage enables you to take out a loan that is secured against your property. However, you don’t make monthly repayments. The interest on your loan rolls up over your lifetime and is repaid when the property is sold, or you die.

This is a lifetime mortgage. To understand the features and risks associated with this type of mortgage, you must ask for a personalised illustration.

Downsizing

A popular option as a means of funding care costs is moving to a cheaper property to release funds. This way, you avoid paying interest on any debt, and access a chunk of equity. This may also provide the opportunity to reduce day-to-day running costs, easing cash flow in retirement.

Annuities

An annuity is a financial product that you can buy to provide you with an income, and they come in different forms. For example, you can buy an immediate-needs annuity with a lump sum. This is essentially a type of insurance policy that provides a regular income to pay for care.

You buy this type of annuity when you need care, and it will pay a tax-free income to the care provider. This type of annuity is aimed at plugging any gap between your income and the cost of care. How much you pay depends on your health and your life expectancy.

But while an annuity provides security that care costs will be met, you could get back less than you put in if you stop requiring care, for example.

Pay into your pension now

Starting to pay into a pension as soon as possible, or boosting your contributions, is one way to prepare for the cost of old age. The more time you give your pension contributions to grow in value, the better. Don’t think you can rely on the State Pension – as of the 2020/21 tax year, this amounts to just over £175 a week.

Ensure that you join your workplace pension scheme. You benefit from your employer’s contributions, and government tax relief.

If you can save more, you could consider a personal pension plan, such as a self-invested personal pension (SIPP). Plenty of investment managers offer ready-made, simple solutions for you to invest towards retirement.

Remember, long-term saving isn’t just about pensions – you may have money tied up in property or other savings and investments, such as ISAs, that will eventually contribute towards your retirement income.

Combining your lifetime’s savings and investments to form an income may help towards the cost of care in the future.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Increases in longevity mean many people can now expect to spend decades – rather than years – in retirement. It's therefore important to plan for your later life, including how you will cover the cost of care.

According to analysis by think tank the Centre for Economics and Business Research (CEBR), employees should be saving an average of £574 more a month into their pensions to meet rising care costs.1

Nursing home costs are projected to rise to an average of £54,375 a year over the next decade, while care homes will cost £39,124, according to CEBR. Meanwhile, rising life expectancy means that these costs will need to be met for a longer period. Women can expect to live to an average 82.9 years, compared with 79.2 years for men.2

Here, we look at the best ways to plan for retirement and options for financing long-term care.

Who pays for care costs?

Whether you pay for care yourself or not is down to a means test, conducted by local authorities. The council assesses your assets, such as your property, savings, and income.

At present, if your assets, including property and savings, are worth more than £23,250, you pay for your own care. These thresholds are £28,000 in Scotland, and £50,000 in Wales.3 If your assets are less than this, you are entitled to help from your council.

Beware of giving away or selling your house to reduce your assets as a means of seeking help with care costs. This could be deemed a ‘deprivation of assets’, or intentionally getting rid of your assets to meet the means test.

Jane Curtis, Chair of think tank the Centre for the Modern Family, says: “Our research shows that an over-reliance on relatives and the state could put families in serious financial difficulty.

“It can seem difficult to know how to prepare for the future, but to avoid a financial care crisis we all need to have an honest discussion on later-life care as early as possible so no one is left footing a bill they can’t afford.”

How to fund care

The care funding system can seem complex, but there are options available to prepare for future care needs. According to Curtis, preparing for care “needs to become as inherent as paying off a mortgage, saving into a pension, putting money into an ISA, or making a will”.

Here are some of your options:

Equity release

You could access money tied up in your property to fund care costs. There are various plans, however, and you should seek expert advice before opting for equity release.

A lifetime mortgage enables you to take out a loan that is secured against your property. However, you don’t make monthly repayments. The interest on your loan rolls up over your lifetime and is repaid when the property is sold, or you die.

This is a lifetime mortgage. To understand the features and risks associated with this type of mortgage, you must ask for a personalised illustration.

Downsizing

A popular option as a means of funding care costs is moving to a cheaper property to release funds. This way, you avoid paying interest on any debt, and access a chunk of equity. This may also provide the opportunity to reduce day-to-day running costs, easing cash flow in retirement.

Annuities

An annuity is a financial product that you can buy to provide you with an income, and they come in different forms. For example, you can buy an immediate-needs annuity with a lump sum. This is essentially a type of insurance policy that provides a regular income to pay for care.

You buy this type of annuity when you need care, and it will pay a tax-free income to the care provider. This type of annuity is aimed at plugging any gap between your income and the cost of care. How much you pay depends on your health and your life expectancy.

But while an annuity provides security that care costs will be met, you could get back less than you put in if you stop requiring care, for example.

Pay into your pension now

Starting to pay into a pension as soon as possible, or boosting your contributions, is one way to prepare for the cost of old age. The more time you give your pension contributions to grow in value, the better. Don’t think you can rely on the State Pension – as of the 2020/21 tax year, this amounts to just over £175 a week.

Ensure that you join your workplace pension scheme. You benefit from your employer’s contributions, and government tax relief.

If you can save more, you could consider a personal pension plan, such as a self-invested personal pension (SIPP). Plenty of investment managers offer ready-made, simple solutions for you to invest towards retirement.

Remember, long-term saving isn’t just about pensions – you may have money tied up in property or other savings and investments, such as ISAs, that will eventually contribute towards your retirement income.

Combining your lifetime’s savings and investments to form an income may help towards the cost of care in the future.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

 

References

  1. Care crisis laid bare: 10 years to save the system, The Centre for Economics and Business Research, February 2020
  2. Office for National Statistics, Life expectancy, 2018
  3. Age UK

 

References

  1. Care crisis laid bare: 10 years to save the system, The Centre for Economics and Business Research, February 2020
  2. Office for National Statistics, Life expectancy, 2018
  3. Age UK

 

References

  1. Care crisis laid bare: 10 years to save the system, The Centre for Economics and Business Research, February 2020
  2. Office for National Statistics, Life expectancy, 2018
  3. Age UK

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