How to afford the rising cost of care fees

20 December 2024

High inflation levels, the impact of increased energy bills and successive National Living Wage (NLW) uplifts (that have exceeded inflation) have hit the care sector particularly hard. In fact, according to research from Laing Buisson, some individuals will be paying up to 20% more for a bed in a nursing or residential home, in 2023/24 than they would have done in 2021/22.

The average weekly fee for a self-funded residential care home bed in England is now around £1,200 per week, increasing to £1,500 per week for nursing dementia care. However, that doesn’t reflect the variation in fees across the country. In the South East, for example, the average cost of a residential care home bed is closer to £1,300, and just over £1,600 p.w. on average for nursing dementia care.

The hidden story is that those paying for their own care (self-funders who have capital over the capital threshold of £23,250 (England)), are essentially cross-subsidising the cost of care paid for by Local Authorities who have the ability to use their bargaining power to negotiate lower fee rates for publicly funded clients. As a result, self-funders are left to bear the brunt of inflationary pressures and will continue to experience significant annual fee increases. In fact, Government estimates suggest that one in seven will face care costs above £100,000, with no current means to be able to protect against this risk ahead of time.

Social care reforms due in October 2025 were expected to resolve some of these issues and reduce the impact of care fee costs on the wealth individuals have worked hard to accrue, but with these reforms now scraped by Chancellor Rachel Reeves, the risk of individuals being forced to sell their home to pay for social care is increasing.

Sir Andrew Dilnot, who authored the reform proposals in 2011 has said this is another example of social care “being given too little attention, being ignored, being tossed aside”

With increasing demand due to an ageing population and growing pressures on staff recruitment, there’s only one direction that care fee costs are going and it won’t be long before the average annual cost of care is running into hundreds of thousands of pounds.

Yet, despite the significant cost, awareness of the social care system, in particular the way in which care can be paid for by self-funders, is extremely low. The Government could do more to help educate the public in this regard (much like they have with pensions and retirement in the past few years), but with limited resources, it’s difficult to see this changing soon.

So we’re left with the expectation that care fees will only get more expensive, with little prospect that Government intervention will happen to reduce the impact on individuals and families who need care. It’s therefore important that all options are considered when care is required, to make the most of any financial support available and ensure existing assets are utilised in the best possible way based on the individuals’ needs.

Depending on the value and type of assets owned, there are several ways in which care can be paid for, and through the right planning it is possible to preserve wealth and reduce the risk of depleting assets that can be retained to pass on to beneficiaries.

Equally, it’s just as important that those who aren’t currently in need of care, consider what the potential impact of this may be on their personal finances, to determine if there are actions, they should be taking to help achieve their goals without fear for how paying care fees may impact this.

Five ways to prepare for and plan for care fees

Preparing for the possibility of care can be daunting and unfortunately, most people adopt a ‘wait and see’ approach, particularly when it comes to considering how care may be funded. I don’t believe this is because it’s seen as a ‘taboo’ subject, although it naturally is a difficult conversation to have with family, but more down to a lack of understanding and education in the context of what’s considered a confusing care system.

So what can you do to prepare and plan for care in later life?

Consider your preferences – take the time, before there is a need, to consider your preferences when it comes to receiving care. Enquire with providers to understand the differences between domiciliary care services and look at care home options in your local area. Whilst the decision may not ultimately be yours and your health needs may ultimately determine your care requirements, considering and sharing your preferences with family/your attorneys, will help to take away some of the stress if there is a need for care in the future.
Lasting Powers of Attorney – a must at any age, it’s vitally important to ensure you have Lasting Powers of Attorney in place, to ensure that someone you trust is able to make decisions on your behalf regarding your personal finances and/or your health and welfare needs. Without this, it can be extremely difficult, stressful and time-consuming for individuals to obtain consent from the courts to act on their behalf if you don’t have the capacity to do so yourself.
Assess your current financial position – establishing the current value of your assets and forecasting your future needs, will help assess the potential affordability of future care should it be required. Where a potential shortfall may be identified, this could highlight the benefit of saving more prior to retirement. Where there may be assets surplus to requirements, consideration can be given to appropriate planning opportunities that can safeguard these assets to achieve other goals (such as benefiting family), whilst retaining sufficient provision for future care.
Care Annuities – given the lack of available insurance-based solutions that can help pre-fund the cost of care, it’s important to ensure all options are explored at the point of needing care, to help reduce the impact on an individual’s assets. Care fee annuities provide an opportunity to ‘cap’ the amount paid towards care as a self-funder, by paying a lump sum upfront to a provider, in exchange for tax-free income that they pay to the care home for the rest of your lifetime. In doing so, it can provide peace of mind that care needs will continue to be met, without fear of running out of assets. Awareness of these arrangements is still lacking, so ensure you speak with an adviser about this option as part of a wider review of your position, when care fees are to be paid.
Seek advice – While most people agree that the State should not fund the full cost of care for everyone, a lot of people feel it is not fair that they should have to spend the majority of their assets to pay for care, particularly if this requires using the value of their home. Unfortunately, that leads many to make decisions that are detrimental to their position, like for example putting assets into Lifetime Trusts with a view to avoiding care fees. Local Authorities have specific powers to be able to assess the value of assets put into Trust, or gifted to others, and consider them as your own as part of a means test assessment, where there has been deliberate action to deprive yourself of assets to avoid paying for care. It's therefore important that you are vigilant and seek appropriate advice from a suitably qualified adviser and engage with a solicitor when considering significant changes to your financial position.