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Equity Review | November 22, 2019

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Should Your Savings and Investments be used to Pay for Care?

Should Your Savings and Investments be used to Pay for Care?
Kenneth Hardman

After the initial shock of learning that you or your loved one may need long term residential care, the next question becomes how you will be able to afford to provide for that care. With a continuous increase in the cost of providing quality care, this is a legitimate concern for anyone who is looking at the prospect of funding care. There are a number of different decisions that need to be made once it is determined that residential care is needed or required.

How much you need to contribute to your own care will depend on the results of your means test with your local authority. You may need to pay for all of your care, part of your care, or none of you care. This will depend on your mobility, health, how much help you actually need and your financial situation including your assets, income and savings. If during your means test, your applicable capital and assets fell below the lowest threshold, your care fees will be paid for by your local authority. There is also potential for you to have your care fully funded by NHS under Continuing Health Care if it is deemed that you have a major health concern or specific nursing needs such as those related to an accident, illness, or disability. In these specific instances, paying for care is no longer such a major concern. A package related to your individual healthcare needs will be constructed and funded entirely by the NHS. These services may be provided in a number of settings including hospice, hospital, nursing home, or your own home. However, for those who find out that they need to pay for their own care, the question of how to pay for it still needs to be considered. If you fall into this category and are expected to pay for your own care, you will need to consider the assets that you have available to you and ensure that you manipulate them in the best way possible to account for all of the care you will need, depending upon your particular health condition(s).

Some may look towards their savings and investments to meet their needs. Many individuals look to funds on deposit. That is because the terms are fairly straightforward and easy to understand. Furthermore, if the say in care is fairly short, the funds can still be retained. However, due to the low rates of interest on this type of scheme the return on the savings is unlikely to meet the escalating cost of care in the UK today. So someone relying on savings may find they need to continually draw on the capital, thus reducing the assets. When you consider that the average cost of care in now in excess of £25,000 it is easy to see how quickly your life’s savings could be very quickly depleted in an effort to pay for your own care.

Because of some of the risks associated with deposit based accounts, many turn to investments to help pay for their care. This is because investments can seemingly produce a greater return, especially as it relates to a longer term time period. However with this potential also comes a greater risk. If the returns on investments are not sufficient then you could still find yourself drawing against the capital sum. The return on the investment may end up not being enough to pay for care which means that whatever money is not tied up in the original investment may have to go toward paying for care.

The only real solution to guarantee your funding for care for life is the purchase of a Long Term Care Plan. Thus, by effectively using an impaired life annuity you can provide the income you need to meet future long term care obligations. In using a plan such as this, you provide a lump sum to purchase a long term care plan in exchange for regular payments toward your care fees. These payments are made for as long as care is needed. The lump sum needed to purchase the plan will depend on your particular needs and conditions, your age, as well as how long it is assumed that you will need care. However, the biggest benefit to this plan is that you never have to worry that your savings will become depleted. You are guaranteed payments for as long as you need care. There are even immediate care plans available that provide payments to your care provider immediately and do not expire until care is no longer needed.