Feature: Funding later life care

One in three over-55s say they are worried about how they will fund care in later life.

In this feature, Will Hale, CEO at Key, talks about why the new social care cap will mean more pressure to fund the associated costs, both by individuals and local councils, with 71% of councils having to increase their adult social care funding during the pandemic.

Mr Hale argues that the solution may lie in equity release. 

The countdown is on as we build up to finding out exactly what the government’s new Care Act will mean in practice ahead of its launch next year. The plan to put the NHS on a sustainable footing and deal with the hot potato that is social care funding could not have come at a better time.

But we will need more details and sooner rather than later to allow for local authorities, industry, and Clinical Commissioning Groups to plan. While it is hoped that the changes will help create a fairer system, the reality is that once the new £86,000 cap comes into effect the vast majority will still need to make a significant contribution to pay for the care they need.

Funding care however is not just about individuals finding the money to pay for long-term care in old age. The pressure on costs is shared by local councils who have to find the money to pay for care in their regions.

That has been the insight behind Key’s series of reports on the issue since 2019 and the third Care Report: Tackling the Care Question has just been published.

For the study we asked councils across Great Britain through a Freedom of Information (FOI) Request about the demand they face for adult social care as well as questioning over-55s across the UK about how they would like to receive care in the future and how they’ll pay for it.

Steep costs see increased requests for support

Figures from healthcare business intelligence company LaingBuisson suggest that the average cost of residential care starts from £28,652 in Northern Ireland, rising to £39,988 in Scotland. Nursing care is also cheaper in Northern Ireland at £36,712 but most expensive in England at £50,908.  While councils are likely to be in a position to negotiate a reduced rate due to the number of clients they fund, this is still a substantial cost and these are of course only average figures that will vary depending on location, with costs likely to be highest in the South of England.

For some individuals, paying for care-at-home, or domiciliary care, is less expensive but can still be as much as £16,800 a year for two hours of help a day, depending on where in the country people live and the rates councils pay.   While care at home is a preference for many, when they need 24-hour live-in support, the cost can be as much as £56,760 a year, or an eye-watering £83,200 annually for people with very complex needs.

Given these costs, it is not surprising that increasing numbers of people are looking for support.  The most recent annual NHS Digital figures show 1.9 million new requests for care and support were received in England – a 40% rise on the 1.36 million requests in the previous year.

Our FOI to councils sought to better understand the existing size of the challenge across the UK. The figures showed in the year ending March 2020 – pre-pandemic – that 598,494 individuals received some financial support from local authorities which was a 15% increase from 513,686 in 2018/19 and 5% higher than the 568.686 recorded in 2017/18

Of the 598,494 people who received financial support, 249,064 were fully funded while 340,430 received partial funding. The 45% increase in fully funded places and 23% increase in partially funded places is likely to be driven by the aging population and more accurate reporting rather than the Covid-19 crisis.

The pandemic dynamic

Our FOI request found just 6% of councils questioned had made no changes to adult care provision during the pandemic.  In fact, the extra effort and expenditure by councils has been impressive. Councils in the North East, North West and South East were the most proactive, having made at least some changes due to the pandemic.

Around 71% increased their funding for care homes while 56% set up a new hotline or phone number dedicated to Covid-19 queries. More than half (55%) boosted the number of people assigned to support vulnerable adults while 48% saw the number of social and care workers they employ increase. However, just 5% provided local authority tax relief to care homes.  

With the pandemic putting health care and support in sharp focus, nearly one in three (32%) over-55s told us they were worried about how they will fund care in later life with 11% feeling they will not be able to and 17% saying that if they need care their local council will have to pay.

The pandemic has added to the financial pressures facing this group – more than two out of five (43%) say it has changed their financial planning for later life with potential impacts on investments, inheritance plans and their plans to carry on working.

One fifth of over 55s (22%) believe they will need to make short-term sacrifices to manage their finances, and 16% believe they may have to work longer than expected before retirement to pay for the type of care they would want in later life, due to the impact of the pandemic.

Almost one in five (14%) believe they may have to look at existing investments to see if they can work harder including considering switching to more high-risk categories to potentially get a larger return to fund future care, and a quarter (24%) do not think they will be able to leave the inheritance they would like due to paying for future care needs.

The role of property wealth

While some over-55s are making plans to boost their saving to pay for care, many are optimistic that they will be able to rely on their existing investments and pension income to meet this cost.  While this may be true for some, government figures suggest that the majority will struggle.

Office for National Statistics (ONS) data shows the average gross pensioner income for a single person is £16,484 and for a couple it is £28,765. Their average investment income is £1.248 for a single pensioner and £3,796 for a couple. The total excluding earned income is £17,940 for a single pensioner and £32,864 for a couple.

When put against the average cost of residential care starting at around £28,000 it is difficult to see how they would be able to afford the cost.

Growing numbers are inevitably looking to property wealth. Owning a home has proved to be a good investment for older people and data analysis shows over-65s own unmortgaged property wealth worth as much as £1.256 trillion.

More than one in four (26%) over-55s say they will use equity tied up in their home to help them which is higher than in 2019 when just 19% said they would use property wealth as part of care funding.

Meeting the costs

While the changes to the care system which are due in 2023 will help people to plan better, there are no easy answers when it comes to funding care – either to the cap or as a self-funder. But there is certainly an argument for older homeowners to use the wealth tied up in bricks and mortar to achieve the right care option for their individual circumstances.

Using available equity to maintain or adapt their property; making it easier for its owner to enjoy a better quality of life, only seems to make sense. If as a society we are happy for older homeowners to use their equity to provide family members with deposits to get onto the housing ladder, repay debts and boost income then we also need to be comfortable with them using it to make the latter stages of their life more comfortable.

Funding care in later life is something that most of us naturally do not want to think about but it is a challenge that many will have to face. As a country, we need to step up and make smart sustainable choices that benefit all members of society.

Photo credit Key