Turbulence in the economy has left many people feeling uncertain about the future, with millions seeking to change their retirement plans.
Being financially prepared in uncertain times is essential, especially as we get older and the end of our working lives draws near.
More people in the UK are living for longer, which is good news. However, this longevity brings certain challenges, such as how we will fund any long-term care that may be needed in the future.
Enjoying Life in Later Years
As we approach old age, it becomes more likely that we may need day-to-day help with certain activities like washing and dressing, or assistance with household tasks, such as cleaning and cooking. This type of support, along with some types of medical assistance, is called long-term care.
Demand for long-term care is expected to rise, due to the rise in life expectancy and the increasing prevalence of debilitating conditions, such as dementia. Long-term care planning can get quite complicated, particularly when it comes to funding, as the cost depends on several unknowns, including how long we are going to live.
The matter is further exacerbated as a result of how local authorities calculate whether a person needs financial assistance for the cost of residential care.
- State support
Government state benefits can provide some help but may not be enough to cover the full cost of long-term care. Currently in the UK, if your capital and income is above £23,250, you’re likely to have to pay your care fees . If your capital and income is under £23,250 you might get some help from the local council, but you may still need to contribute towards the fees (1).
- Financial support assistance
Long-term care insurance can provide the financial support you need if you need to pay for care assistance for yourself or a loved one. Additionally, some long-term care insurance will cover the cost for those who need help to perform the basic activities of daily life such as getting out of bed, dressing, washing and going to the toilet. You can receive long-term care in your own home or in residential or nursing homes.
Funding Long-Term Care
When planning for long-term care, one of the most important things to consider is how you will fund it. Regardless of where it is received, paying for care in old age is a growing issue. There are several ways to fund long-term care. The main options available for people needing to make provision are:
- Immediate Needs Annuity
This annuity is a type of insurance policy that provides a regular, guaranteed income for life to pay for long-term care in exchange for an upfront lump-sum investment. Income is tax-free if it is paid directly to the care provider.
- Enhanced Annuities
You can use your pension to purchase an enhanced annuity (also known as an ‘impaired life annuity’) if you:
- Have a health problem or a long-term illness
- Are overweight
Annuity providers use full medical underwriting to determine a more accurate individual price. People with medical conditions, such as Parkinson’s disease and multiple sclerosis, or those who have had a major organ transplant, are likely to be eligible for an enhanced annuity.
- Equity Release Schemes
If you need to fund long-term care and have already paid off (or nearly paid off) your mortgage, an equity release scheme could be an option to consider. This is a lifetime mortgage – or Home Reversion Scheme – and gives you the ability to obtain a cash lump sum as a loan secured on your home. However, it’s essential to make an informed decision and consider the options and alternatives available, plus any implications regarding state benefits, local authority support and tax obligations before committing.
- Savings and Investments
These two methods enable you to plan and ensure your financial assets are in place for future care needs.
If you are already retired, or nearing retirement, you should ensure that your financial affairs are in order; for example, arranging or updating your Will or Power of Attorney.
If you are of working age, you are in the best position to plan for your future needs. Accumulating wealth through investments or savings while you are earning will help with the potential costs of long-term care in later life.
The Future Looks Bright
As more of us can now look forward to living to a ripe old age, planning for a secure financial future has never been more important.
We can assist you to review the appropriate options available and minimise the impact of funding long-term care. To find out more, please contact us.
THE VALUE OF YOUR INVESTMENTS MAY FALL AS WELL AS RISE AND YOU MAY NOT GET BACK WHAT YOU ORIGINALLY INVESTED.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATES WILLS.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.