The government’s social care cap, announced in September 2021, is intended to help cover the potential costs of later-life care.
New research, however, has found that 3 in 5 UK adults think the government scheme is unfair. This is largely because key costs, including accommodation, food, and utilities, won’t be included.
Many imagined the cap – placed at £86,000 – would mark the maximum payable. The exemptions, however, will mean care costs could quickly spiral above the cap, leaving vulnerable care users severely out of pocket.
So, what is the cap, what are the rules surrounding it, and how might you start planning to cover the cost of your own care?
Keep reading to find out.
The UK’s ageing population and increased costs have created a social care crisis
With the figures for UK life expectancy – and “years spent living in ill health” – rising, the numbers of those needing social care in later life is increasing too.
Back in 2018, the London School of Economics reported that the number of adults aged 85 and over needing full-time care in England will double over the next 20 years. The number of over-65s requiring round-the-clock care is expected to rise above 1 million in the same period.
The costs associated with care can be prohibitively expensive.
The average monthly cost for a residential care home is around £3,500, or more than £40,000 a year. This figure grows further where nursing care is also required.
Even if you don’t need to move into full-time care, receiving domiciliary help in your own home could cost £15 an hour or more. At that rate, just two hours of support a day mean an annual bill exceeding £10,000.
To help with these costs, the government has proposed a social care cap.
The social care cap will stand at £86,000 and is likely to come into force from 2023
Under current rules, those living in England, and with assets exceeding £23,250 have to pay for their own later-life care, with no upper limit on the cost to them.
The proposed new system would see those with assets below £20,000 receiving their care for free. A sliding scale will be used to calculate the amount payable for those with assets between £20,000 and £100,000.
People in this bracket won’t be asked to contribute more than 20% of their assets each year. Once the value of those assets drops below £20,000, they would stop paying altogether – although they might still make contributions from any income they receive.
Under these new rules, if your assets exceed £100,000, you will need to cover all of your care expenses, until the value of your assets falls below this amount.
The lifetime social care cap of £86,000 relates only to care costs and not to accommodation and other living costs like food and utility bills.
Factoring later-life care into your long-term financial plans is key
1. Use your pension savings
Pensions are tax-efficient. Not only will you receive tax relief on the contributions you make, but you’ll usually be able to access up to 25% of your fund tax-free at retirement.
You might consider holding back a particular pension to use to fund care. This has the added benefit that unused pension funds can be passed on tax-efficiently on death in some circumstances.
If you plan to use other, non-pension income to part-fund your retirement, taking a pension last could mean the money is there to fund care, if, or when you need it.
Investment products like ISAs are also tax-efficient. There’s no Income Tax to pay on the interest you earn in a Cash ISA and no Capital Gains Tax to pay on returns from a Stocks and Shares ISA. This makes an ISA a great way to supplement pension income or allow you to hold off on taking your pension.
2. Using money locked up in your home
You might consider unlocking money tied up in your home through equity release. You’ll receive a loan secured against your property, which you can take as a one-off lump sum or a series of smaller payments.
If you need to fund care and don’t have pensions or investments available, we can help you decide which of the two main types of equity release – a lifetime mortgage or a home reversion plan – is right for you.
You’ll need to be aware that equity release reduces the value of your estate and can affect your eligibility for means-tested benefits.
Get in touch
While the social care cap might relieve some of the financial pressure if you need later-life care, you may be required to contribute too. Factoring these potential costs into your long-term financial plans is key, and we can help. Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
