Have You Factored in Social Care Costs to Your Retirement Plan?
The Conservative Manifesto for the 2017 general election is set to introduce draconian new rules requiring those of us with even modest savings and investments, including the value of our homes, to be used if needed to pay for social care costs.
I don’t intend to add to the moral argument of whether this is the right or wrong approach, but to deal with the practical issues of how it might impact you and what you can do about it.
Essentially all social care, whether residential or in your own home, will be means tested. The proposal is to allow you to keep £100,000 to pass on as an inheritance. Until the last few days there was going to be no cap on the maximum you could contribute, so those with a £1m house, needing residential care long term, might face having to contribute up to £900,000 to their own care.
In the last few days, the government has backtracked and said they will also introduce a cap on fee contributions, but we don’t know what this will be.
Major Impact if You Own a House
The bottom line: Anyone with more than £100,000 of total assets, including their home, investments and savings, will be asked for a substantial contribution to cover their care costs, albeit with a cap on total contributions (which is yet to be determined).
How Can You Mitigate Social Care Costs?
In no particular order, here are my thoughts on the issue…
- If you don’t have children or other dependents to bequeath your estate to, or if you don’t mind if you don’t pass on your wealth, then you don’t need to consider these changes. Let the government take what it is due within the new rules.
- Clearly, if you don’t need social care, there is nothing to contribute. That’s a good argument for staying as healthy as possible for as long as possible. There are mountains of evidence now that the impact of our diet, exercise, positive attitude, and other factors that we control can make an enormous difference for our wellbeing. The life choices we make really can make a difference.
- Care costs in other parts of the world are a small fraction of what they are in the UK, especially in countries in Asia, South America, and so on. Provided that you don’t mind being cared for in a foreign country, you might consider emigrating before you are in need of care. A drastic solution for some people, less so for others.
You could give away your assets to family prior to needing care costs. Be careful—if the council thinks that you gave them away knowing that you would need care, they can see to legally reverse the situation. So, if you plan to do this, do it early! Don’t forget that you may have a double benefit because if you give away assets seven years prior to death, they will no longer count towards the inheritance tax bill on your estate.
- Structure all or part of your assets so that they are no longer within your control: for example, place them within a trust. Again, this should be done sooner rather than later. If you have net assets over £1m, then talk to me about the trust solution which offers many protections, not just about care costs.
- Arrange your accommodation so that you can have a live-in caregiver if needed. If there are two of you, this is a considerably cheaper alternative to residential care, and you keep the benefit of living in your own home. If you live in a large house with multiple floors, you may consider moving to a bungalow or apartment on one floor, making mobility less of an issue.
- Care costs are one of the ticking time bombs as we live longer lives and medical advances maintain us in ways we never expected. With life expectancy growing towards 100 years, we could easily face 20 years or more of requiring some level of care. With care home costs reaching £1,000 a week or more, that’s potentially a bill of £1m over your lifetime. Paying that would make a serious dent in most people’s estate. It’s definitely worth considering the options and including the payment of care costs in your retirement plan.
If you’d like to discuss how your investments or savings could produce a better return, thus increasing the value of your estate and making care costs easier to accommodate, just let me know. And if you have a £1m+ estate, then the trust solution might be an interesting solution.