How will you pay for life at 100?

As dementia becomes the leading cause of death in England and Wales, 2016 may be the year our ageing population really begins to make its presence felt.

Around 15 million people in the UK currently aged 60 or above, already outnumbering the under 18s. And though just 3 per cent of Brits expect to, almost 20 per cent of us will live to see our 100th birthday.

The implications for the nation as a whole are widespread and complex, as the latest discussions over everything from the future of the economy to this week’s news on NHS restructures demonstrate.

As individuals though, fears about funding long term care, what it means for the assets we’ve built up over a lifetime, and the effects on what we can afford to leave to those we love are burgeoning into the fathomless space created by a huge information vacuum.

It’s hardly a great position to be in as the pressure on state funding builds and the temptation to bury our heads in the sand runs the risk of a serious shortfall.

Already, two million elderly people have care needs, (set to rise to 4 million by 2029) and yet the vast majority of the over 45s – either believing they won’t need care, can cover it out of existing savings or that the state will pay – aren’t taking steps to cover the costs of long term care, warns care agency SuperCarers.

“The statistics show just how little planning is taking place by those aged 45 or over in terms of preparing for elderly care in spite of an ageing population,” warns Adam Pike, CEO and Co-Founder of SuperCarers. “It seems that preparing financially for future care requirements isn’t as high up on the agenda as it should be.

“There is little faith in the UK’s care system as overpriced, poor quality service has become the norm. There is no wonder that there is a lot of negativity about later life and fear about how care is going to be paid for.”

And those care costs are breath-taking.

On average and in today’s prices, just staying in your own home with 2 hours of professional care a day it will set you back around £11,000 a year. Simply living in a specialist property will cost around £30,000 a year, rising to almost £40,000 a year if you need nursing care.

As you might expect, the figures vary dramatically depending on where you live, with older South East England residents forking out around £1,200 more every month than their Northern Ireland peers, according to data from Laing & Buisson and Just Retirement.

That’s the typical cost though. So if you’re hoping for 5-star accommodation in your twilight years, expect to pay far more.

State support

The theory at least is that from 2020, the way adult social care is paid for will change so that you’ll only pay £72,000 of your own care costs in total. It sounds pretty good, but that is very much means-based and to qualify your assets, including your share of any property, must total no more than £117,000.

The cap also applies to care costs only, and at the rate set by your local authority. You’ll need to fund your bed and board bills yourself and if the residence you’ve chosen is more expensive than your local authority rate you’ll need to fund the difference.

In reality you could be paying for your care for years before you get any help from the state. And if you need care before 2020, you’ll only receive state support if your total personal assets are worth £23,250 or less.

Your options

It all sounds pretty bleak, especially as the average pensioner income comes in at less than £17,000 a year all in. But there are steps you can take, products you can buy and benefits you may be able to tap into in a bid to manage the costs.

That may include things like free NHS continuing care alongside the means-tested support if you have a disability or complicated medical circumstances to start with, especially if you need a medical nurse rather than a more socially orientated carer.

There are other benefits too, like non means-tested Attendance Allowance and the new Personal Independence payment, which used to be the disability living allowance. The Money Advice Service is a good source of information.

It’s also worth checking any insurance policies for care cost inclusions.

Self-funding

Exhausted the state support, or perhaps endlessly rising property values have forced you to put your hand in your pocket?

Straightforward downsizing or some form of equity release are the best known choices – taking money out your bricks and mortar assets now in the knowledge that you’ll subsequently own a smaller proportion of it.

Renting out your home once in care could also provide a solution. Or there’s the more questionable sale and rent back option that means selling your home but remaining it in by renting. This comes with loud klaxon-based warnings that you’ll get a lot less than market value for your property and your rental costs could go up significantly over time though. It’s little wonder the Financial Conduct Authority is currently taking a very close look at these kinds of outfits.

Elsewhere using the returns or dipping into the underlying capital in an investment portfolio would need careful consideration by both you and your financial adviser. For specialist advice on the funding demands of old age, the not-for-profit Society of Later Life Advisers could be a good place to start, as are financial advisers with the specialist CF8 qualification.

“If you’re already in your 50s or 60s, there’s not a lot of point putting a monthly amount aside and you’ll need to leave behind the notion of being able to leave everything to your children,” warns Nicky Cave, managing director and care fees adviser for the eldercare group.

The trouble is that most better known options result in finite lump sums that will last a certain amount of time and no more. In which case, little known care annuities could be the answer. Often known as immediate or deferred need annuities or care plans, the basic premise is that you exchange a lump sum for a monthly tax-free income.

Immediate need care plans are designed to cover the shortfall between your income and the cost of care for the rest of your life when you need to pay for care imminently. The amount you pay will depend on factors like the income you need, your health and how long you’re likely to live or need it for. A deferred needs annuity or care plan works in the same way but begins paying out after a specified time delay.

“It’s time the general public was realistic,” adds Cave. “The truth is that you’re in a bad situation if you’re not aware of the costs, if you’re expecting the state to fund your long-term care needs and if you’re not prepared to use your assets to secure your choices.

“There is very good care paid for by local authorities, but how sustainable is that? Most of us simply need to accept that we will need to find a way to pay for our care as we get older.”

Need more info on care funding or care homes? Try:

Money Advice Service 
The Society of Later Life Advisers
Age UK
The Care Quality Commission
Social Care and Social Work Improvement Scotland 
The Adult Social Services department of your local authority 
Your local library may have directories such as the A-Z Care Homes Guide