Funding if you are already in residential care
If you are already in residential care or are about to go into care, the cost can be a major concern. Depending on where you live in the UK, costs can vary widely from around £600 per week in the Midlands and North, up to £1000 per week in the South East. When you are about to go into care, the local authority will send the family a care assessment form, asking for details of assets and liabilities, including income, state benefits received and income from investments. Any income received by the person in care has to be used to pay for that care, with the exception of £23 per week pocket money which the resident is allowed to retain.
Many people will have a shortfall, the difference between the income they have and the cost of care. How to close this funding gap is a major issue for many families.
If a person has more than £23,250 in assets (including the value of their home), then the person in care will currently receive no help towards the cost of care. If the resident has assets worth more than £14,250, then they will be expected to make a contribution towards the cost of care. People paying towards the cost of their care are known as “self funding”.
If you have to self-fund care, you have 2 choices. Firstly, you can pay for the cost of care from your assets. The problem with this approach is that while the cost of care is known at the outset, what is unknown is how long care will last. Care will last as long as you live. This makes budgeting very difficult and often residents will run out of money towards the end of their lives. This can mean that residents may have to move to inferior accommodation at a time in their lives when they are becoming increasingly frail and dependent. Another consideration is that local authorities will try to obtain payment towards care costs from family members. This is known as the “third party top-up” and can come as a major shock to the relatives of the elderly person.
The second option is to buy a product called a long-term care annuity to pay for care for the rest of the person’s life. This annuity can be bought at any time the person is in care and provides a regular income for the resident for the remainder of their lives. Income is paid tax-free direct to the care home. This has the advantage of capping the cost of care. The disadvantage is that if the person dies relatively quickly after purchasing the annuity, then the family may have paid a large sum upfront with little return. The only way of knowing if it has been value for money or not is after the person has died. Whether you buy an annuity or don’t buy one is a gamble either way. If you don’t buy one, you risk the elderly person running out of money.