If someone chooses not to take out a care annuity then they would need to ‘self-fund’ care.
If someone has sufficient income from the state and private pensions, Stephen Lowe, group external affairs and customer insight director of Just Retirement, says it can be used to cover care costs.
But he says as care needs increase, so does the expense to the point that few people can afford to fund residential or nursing care from income alone and thus would need to use savings or realisable assets.
Since April local authorities have also had to offer anyone a loan to meet care costs, secured on the home at a fixed interest rate, Mr Lowe adds. This “universal deferred payments system” is not available to those with assets of more than £23,250.
Frances Ross, product manager at Partnership, says to self-fund care the elderly are generally using one of the following options:
1) Using their assets – i.e. liquidating the proportion of their assets each year that they need to meet the costs of care. This might mean selling investments or their home. Ms Ross says 25 per cent of self-funders run out of money and need to fall back on the state.
2) Use income from their pension/investments. Some people who have a defined benefit pension scheme and sufficient investments can meet the cost of care from this income, Ms Ross points out. However, with care costing around £28,964 in England, she says this may not be an option for many.
3) While an equity release plan is redeemed if someone goes into care, Ms Ross says if their partner is still resident in the home and they wish to use the equity to pay for care, this can be an option.
4) If someone exhausts their assets but does not want the state to pay for them as – for example – they may need to move care home then the family can choose to contribute to the cost of care.
Ultimately Andrew Dixson-Smith, care fees adviser and director of Eldercare Solutions, says while funds can be gathered from capital and income these options leave you with the risk the money could run out.
If cash is limited the choice of care will be limited and can result in the person having to move to a care homes approved by the local authority, which will accept their top up to income.
