Long-term care of the elderly has been in the news a lot this month and the question hanging on everyone’s lips is: “How is all of this going to affect my retirement?” The Dilnot Commission, headed by Economist and Commission chairman Andrew Dilnot, had to try to find ways to fund long-term care for everyone. Here are the main proposals and how they might affect you.
- The current system for residential care
- Proposed changes in residential care payments
- What could these changes mean for you?
- Planning for the future
The Commission on Funding of Care and Support was put together in order to address difficulties that the elderly care system would need to face sooner or later.
- The over-65 population in the UK is projected to double by 2058, making it the fastest-growing age demographic
- One in four pensioners requires long-term care in a care home for an average of two years and at an average cost of £26,000 per year
- One in ten older people faces future lifetime expenses above £100,000
- For those who may need specialised care from retirement onward, costs sometimes mount up to £500,000 or more
Dilnot wants the care system to remain economically viable while providing care for those who can’t afford it.
Today, funding from elderly care rests solely upon those using it and their families. Only those patients with assets of £23,250 have access to state aid. This means that right now, if you’re valued at even a pound above £23,250, senior care is going to be paid from of your own pocket until you fall below the threshold.
Dilnot and the Commission on Funding of Care and Support published their report on July 4th. Here are some of the major changes they’ve proposed:
- Care costs for individuals will be capped at £35,000
This means that if you end up in senior care you’re expected to pay for the first £35,000 of your bill. After that, the state will cover the costs of nursing and health care. Pensioners are expected to pay for general living costs (i.e. room and board) at a residential care facility) if they need one.
- Contributions towards general living costs will be fixed across the country
This will amount to £7,000-£10,000 yearly – which is at most £190 per week. Since the median net income of a single person over 65 is £11,284 per annum, these changes may not leave elderly people in care homes with a lot of pocket money, but it does make assisted living seem like a manageable expense. Dilnot’s report also recommends that the existing personal expenses allowance be continued (hopefully increased) so that even in the worst of cases you’re left with more than a few pennies for your weekly purchases.
- Tiered cap for people under retirement age with eligible care needs
A lot of people enter into adulthood with disabilities that limit their earning potential and require regular professional attention. Under this new system, anyone under 40 with a need for care faces a zero cap; the state looks after them for as long as they need looking after. If someone develops a disability after 40, they’re looking at a cap of £10,000 per decade up until retirement age. A 40-year-old would contribute the first £10,000, a 50-year-old the first £20,000, etc.
- The means-tested threshold will be raised to £100,000
If Dilnot’s proposals are accepted, the barrier for access to public funds will be lowered significantly. If you have assets under £100,000 you will qualify for full state support and need not even worry about the £35,000 cap. All you will need to pay is £7,000-£10,000 per annum for room and board. That said, the average UK home is valued at around £160,000, so if you’re a homeowner chances are you’re going to have to shell out some cash no matter what. The good news is there will be a predetermined limit, so you’ll know from the get-go how much money to have in the bank in order to breathe easy.
The bottom line for everyone is the financial impact that these proposed changes could have on their life and your finances. For starters, the very soonest that these changes could be enacted is in 2014, and that’s if we’re being optimistic. So there’s still time for you to take stock of the changes and prepare for them.
If you’re over 65 and already living in a care home this probably won’t affect you, since the average need for residential care in UK is only two years. Dilnot’s report does state that if someone’s needs change at any time they can be reassessed by their local authority, so if further care is needed you can get it. If you’ve already reached the £35,000 cap you won’t need to cover any further costs for care.
If you’re under 65 and living with a disability or serious illness you will be able to apply for state-funded care when these changes come into effect.
If you’re nearing retirement keep an eye out for this White Paper in Parliament. If you already have assets exceeding £100,000 start putting aside money for elderly care, should you ever need it (touch wood). The most you’ll ever need to spend is £35,000, plus an additional £7,000-£10,000 for room and board each year you spend in a care home.
If you’re a young, working taxpayer, be prepared to see your taxes increase. These changes are projected to cost the Treasury roughly £1.7bn per year and that figure is likely to increase. Dilnot suggests three ways for making up the difference:
- Through general taxation
- Reprioritise existing expenditure
- Introduce a “specific tax increase,” the burden of which would be partly assumed by those over state pension age who benefit from the reforms
There has also been talk of a proposal to lift the National Insurance contribution exemptions for over-65s. They would then need to contribute 12% of earnings above £139 per week. It’s unlikely this will happen since Dilnot seems to favour these other three avenues.
- Put £35,000 in the bank
This is your “rainy day” money. If ever you need to enter into assisted living, you know that you have the money banked and you won’t need to sell any of your assets to pay for treatment. If you are earning the average for a pensioner you should be able to cover general living costs using your income.
If you have a few years until reaching retirement, you may find it best to put the money aside in a tax-free savings account (ISA). A single account holder can put in £15,000 per year and accrue interest without losing any of it to tax payments.
For more tips or to find the one that best suits you, read our article on ISAs.
- Keep below the £100,000 means-tested threshold
If you suspect you may soon need elderly care and your savings and assets are hovering somewhere around £100,000, make an effort to stay beneath the mark. This way, if ever something happens that compromises your health you can rest assured that it won’t also compromise your finances.
- Get health insurance
A positive outcome of these changes is that they will likely drive the cost of health insurance way down. Gone will be the days of people spending six figures on assisted living. Insurance companies won’t be able to justify their current premiums and the price for coverage will drop. If you’re after peace of mind you may find it at a much lower price within a few years.
- Stay healthy
The biggest favour you can do yourself is staying in shape. Regular, moderate exercise among the elderly will reduce their risk of heart disease, high blood pressure, osteoporosis and osteoarthritis, diabetes, and obesity. It’s inexpensive and never too late to start!
Most gyms and health centres have reduced rates for seniors and fitness instructors who can provide you with an exercise program suited to your needs. The GLL offers a range of services and activities to keep you fit, and centres across London offer monthly memberships for over-55s at £20-25. If you’re in the mood for something a bit ritzier, Virgin Active has Club 55 memberships in 35 of its 69 centres across the UK, offering classes and activities from yoga to aqua-aerobics. Fees range between £29.95 and £54.95 monthly.
Putting in even a cursory effort now may keep you out of residential care later.
- Dilnot Commission on Funding of Care and Support
- The fairer care funding report