Five ways to finance long term care

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Current statistics show that three-quarters of those aged 65 and above will need care at some stage in their life.

Hundreds, if not thousands of people in England enter the care system every week.

While the Government has recently made changes to the funding of care by increasing the threshold on payments to £123,000 and introducing a cap of £75,000 on payments, many people - especially homeowners - will have to pay for the cost of their own care.

This may not be as bad as it sounds though. Many people want to pay for the cost of their care, as it gives them choice in the type of care they have, and in where they receive that care. They don't want to have their care dictated to them by the policies of the relevant local authority.

The key question, of course, is how do you pay for the cost of long term care?

The stock answer used to be 'sell your house' but the vast majority of people don't want to do this, as there may very well be a spouse or partner still living in the house, or they may - understandably - want to pass the house on to their beneficiaries.

In this article we've taken a look at five ways of funding long term care which will hopefully help clients to plan for the possibility of care - and to look ahead with some degree of confidence and reassurance.

Saving for future care costs

This, of course, is the textbook answer. Make sure that you have a good pension in place and/or save tax efficiently through an Individual Savings Account - and start saving early, so that compound interest has time to take effect.

If you save in this way the savings don't specifically need to be for the cost of long term care, but the money will be there if you do need it for that purpose.

The problem is that most people don't like saving for the cost of long term care. Psychologically, it's like critical illness cover: individuals are quite willing to acknowledge the need for long term care and they're quite willing to acknowledge the cost of it. The thing is, it isn't going to happen to them…

An annuity

By the time clients reach retirement their financial planning picture is usually much clearer - and it is at this point that many choose to make provision for the possible cost of long term care. Buying an annuity means that you will have a defined income for the rest of your life which can be used to fund part or all of the cost of care. Remember that independent advice is essential if and when you buy an annuity. There are now a very wide variety of options with annuities, and it is essential that you purchase one which meets your financial planning needs.

Equity Release

Many people reach the latter stages of their life "property rich and cash poor." In the circumstances equity release - releasing cash from your property to be repaid on your eventual death or on the sale of the property - seems like an attractive option. It is estimated that around 7% of all equity release arrangements are to fund the cost of care, but it is not a decision to be taken lightly. There will be setting up costs, and you will also have to pay interest on the money 'released' which will roll up until the eventual sale. Again, it's an area where independent financial advice is absolutely essential.

Deferred Payment

This allows people who don't want to sell their home immediately to move into care, with the local authority paying the costs of care and reclaiming them when the house is eventually sold. This option is only available if you have insufficient income to pay for your care and savings of less than £23,000 excluding the value of your property.

Make sure you are claiming the benefits you are entitled to

This may sound obvious, but the benefits system is complex, and it pays to make sure that you are not one of the millions of people who don't claim the benefits to which they are entitled. However, benefits are simply not going to pay the full cost of the care you want, which brings us back to the need for financial planning…

No-one wants to go into care - but sadly it will become a reality for many of us. If you do have to go into care, what you will want above all things is choice and control - the care you want, delivered in the location you choose. The only way to guarantee this is to plan for the cost of it and, as always, we will be happy to sit down with our clients and look at all the options and possibilities available. We are only a phone call or an e-mail away.