Pension & ISA savings, and later life care costs

PJM_62

Just wondering how others are approaching this?
We've spent the last 10 years or so putting ourselves in a position where we can retire early (paid off mortgage, extra pension payments, ISA savings, etc).
One thing that doesn't seem to get much of a mention in this forum is elderly care costs.
Often hear stories of how old folks that have more than £23k savings end up paying for all their care costs, which can be over 2k per month. Whereas those that don't have the £23k have it all paid for.
Is there an advantage to having little/no money in an ISA, and more in pension?
When early retirees are working out The Number, what provision are they making for the possibility of huge care costs?

Linton

Care home costs are more than £2K/month. £3K/month would perhaps be closer and it could well be more depending on your needs.

For care assessment, pension pots are treated as equivalent income rather than as capital assets. If your pension pot is not being used it is assessed as if the money was used to buy an annuity. If you are in drawdown the assumed income figure will be the higher of your actual drawdown and an annuity.
Some important factors to consider:
- Most people dont need residential care. They die at home or in hospital.
- If people do go into care they usually do not last long: half die within 1.5 years. However some people will be there for 5-10 years.
- Many people would prefer not to go into a care home. This can be delayed for a significant period with appropriate at-home care which is much cheaper than a care home. Council provision is limited to something like 4 X45 minute visits a day. If you can afford to pay privately you can purchase care appropriate for your needs.
- If you do need to go into a care home paying for yourself should give you a much wider choice.

As to how to pay for it....
1) Use your home as insurance. This is fine for care homes though rather more difficult for paying for care in your own home. Equity release may be appropriate.
2) Plan for a significant lump sum to be left at death. You need to do that to allow for a long life anyway. If you dont need it then it becomes an inheritance, if you do then I am sure your beneficiaries would rather you spent your last days in comfort. If that isnt their view should they be remembered in your will?
3) Council paid residential care is there as a backstop, but in my view one should not attempt to cheat the system. The obvious ways of doing it may well not succeed and could leave you in a worse position than if you had not tried. As I said at the start most people dont actually need it.

See https://www.moneyadviceservice.org.uk/en/categories/care for more info/options.

PJM_62

Thanks Linton. You've pointed out a good few things I hadn't considered. Lots to think about.
So, I guess the reason then it doesn't really get brought up in the My Number threads is that it's unlikely to affect the majority. But if it does, most people contributing to this forum are likely to have provision through one means or another.

Linton

One extra clarification which I have just noticed. It isnt the case of care provision being all or nothing based on £23K of assets, All your income bar a small amount for personal needs is assumed to be used to pay for the care. The council would only pay for costs beyond that.

lisyloo

We would use our home or other savings (note home is disregarded if spouse lives there).

I don’t think people should aim for state funding because

1) some facilities are horrible
2) you won’t get a choice of timing when you enter and hard pressed LAs will leave this as late as possible exposing people to the risk of failing or infections (both our parents were in a poor state even though they had carers at home to help shower. I don’t think either of them chose to have a shower and hard pressed carers are happy with a decline). Also not being able to choose when means you’ll Be restricted with whatever is available at the time you need it. Anywhere that’s any good will have a waiting list.
3) you won’t necessarily have the choice of somewhere near family or even necessarily with your spouse given availability and care needs criteria constraints.

I don’t think people trying to avoid care fees have a realistic view of the issues.

bostonerimus

LTC has been in my mind quite a bit lately. A couple of my grandparents were in local authority care homes in the 1970s and paying for them simply wasn’t an issue. Both of my parents died quite suddenly so it wasn’t an issue for them (or me) either. But I just got a letter from my 92 year old aunt and she has moved into care and I assume she is paying for it from the sale of her house and other money she has....I must write her a letter in large print!

It’s a particular worry for me as I live in the USA and the closest thing to family I have here is an ex-wife. I’m in my late 50a now and 20 years ago I bought LTC insurance that will pay $200/day for residential care. This has turned out to be a good thing as I don’t need to worry about the state coming after my assets. I can pay for Medicaid benefits without any risk to my estate as I have an insurance policy that will pay. There's no need to use arcane legal arrangements to reduce the size of my estate to protect it.

Audaxer

Linton wrote: »

For care assessment, pension pots are treated as equivalent income rather than as capital assets. If your pension pot is not being used it is assessed as if the money was used to buy an annuity. If you are in drawdown the assumed income figure will be the higher of your actual drawdown and an annuity.

Am I right in understanding that if you had say £100k in a S&S ISA that money would be classed the same as savings and would go towards care costs, but if instead you had the £100k in a SIPP it would be exempt?

DairyQueen

Audaxer wrote: »

Am I right in understanding that if you had say £100k in a S&S ISA that money would be classed the same as savings and would go towards care costs, but if instead you had the £100k in a SIPP it would be exempt?

My understanding is that the assessment of whether you should pay care home fees is initially based on the value of all non-excluded assets, and that DCs/SIPPs are excluded. The ISA would therefore be included in this capital phase of assessment but the SIPP would not.

1) If the value of the above calculation is < £14,250 then the LA will pick up the entire tab.

2) If the value is between £14,250 and £23,250 then the LA carries out an income assessment to determine the individual's contribution. All sources of pension income and savings are assessed and this would include the income available from the SIPP (providing you have reached SPA).

The amount of income assigned to the SIPP will be either:
- the actual amount of income you are drawing from it
or
- a notional amount of income that you could be taking. Not sure how they calculate this but I suspect it may be on the same basis as for any other savings. i.e....£1 per week toward the fees for every £250 in capital so a notional weekly income of £400 on a SIPP of £100k.

3) If the value is > £23,250 then the LA contributes zero toward the fees until such time as the non-exempt assets total less than this.

Using your example:

If the £100k was in an ISA then it would be included in the assessment of capital and you would be liable for all fees until it reduced to £23,250. You would then be assessed as needing to contribute 23,250 / 250 = £93 initially per week from this income source. When the value had reduced to £14,250 your contribution would be zero.

If the £100k was in a SIPP then it would be excluded from the assessment of capital at the outset. Assuming no other assets then the LA would pick-up the entire bill.

That's my understanding but I'm no expert. Anyone else have a definitive answer?

Why anyone would want to sit on a £100k SIPP whilst living at state expense, and at the mercy of LA-funding, is another question.

PJM_62

The thought of 30k per year being taken from hard saved retirement funds / estate is quite depressing. As I'm sure life in the wrong home could be.
The thought of paying into some sort of care insurance from age 40/50 sounds preferable.
Does anyone do this?

lisyloo

if the £100k was in a SIPP then it would be excluded from the assessment of capital at the outset. Assuming no other assets then the LA would pick-up the entire bill.

But all income also has to be handed over (minus around £25 for personal spend), this includes state pension and attendance allowance.
As per Linton post I’d expect SIPP to count as income (unless below 55).

lisyloo

PJM_62 wrote: »

The thought of 30k per year being taken from hard saved retirement funds / estate is quite depressing. As I'm sure life in the wrong home could be.
The thought of paying into some sort of care insurance from age 40/50 sounds preferable.
Does anyone do this?

Most people won’t need residential care (will die before or in hospital) so this is a minority.
Although a few people do spend many years in care, most spend a short amount of time (because they are usually frail before they enter).
Many manage with care/meals at home and technology is getting better to allow people to do this (pendants, crash mats, cctv). Maybe in future we will have robots for medication etc.

I don’t believe there is any insurance available (apart for your own self-insurance).

I get where you are coming from because if you cannot be left on your own for physical or mental reason then it is indeed quite sad/depressing, however what else would you want to spend your money on if it’s not your own well being?

It is a difficult one financially as most of us won’t need residential care.

I think most of us has some idea about our own longevity. My husbands Family are long lived, many living into their 90s, so his chances of needing long term care are higher than average.