Bank's £10.5m fine highlights the need to prepare in advance for long-term care
Don't assume that the NHS will pay for your care at point of need, as most of it will have to be funded by you
Sunday 11 December 2011
The question of funding long-term care is a big one, both for individuals and the state.
After HSBC was slapped with a record £10.5m fine last week for selling unsuitable investment products to elderly customers, it hit home how important it is to get financial planning for care right. But, if you aren't willing to rely on the Government, what can you do to protect yourself?
The Financial Services Authority (FSA) issued its largest ever retail fine to HSBC after its subsidiary NHFA mis-sold investment bonds to elderly customers covering the cost of long-term care. These bonds were entirely inappropriate for the vast majority of customers (87 per cent according to the FSA), who with an average age of 83 had a shorter life expectancy than the recommended five-year investment period for the bonds.
The big problem is that if you leave it too late, paying for long-term care can eat up everything you have. No one can guess how long they will need to be in a nursing home, or if they will need care at all.
"There is a lack of understanding that care is not free at the point of need and that it is means tested," says Chris Horlick from the insurer Partnership. "Most people arrive at point of need and think the NHS is going to pick up the tab for this, and for many people it is a huge shock that it won't."
Care needs vary widely; some people get help from family members and others will not need to go into a home. What we do know, however, is that with fees which now average £36,000 a year and hitting more than £40,000 in London and the Home Counties, it doesn't take long for even the moderately wealthy to see their money run out.
The best place to start is to find out what the state is likely to provide, but if you have even moderate savings, don't expect much help. If you are receiving care at home, you will have to cover all costs yourself if your assets (excluding the value of your home) exceed the upper limit, which for this tax year is £23,250. How much you pay will also depend on where you live. Within England there is something of a postcode lottery, with wide variations in the hourly cost of home care depending on your local authority and some authorities capping the amount you pay each week.
In Scotland, there are free personal and nursing care payments to help towards the cost of care, currently £159 a week for personal care and £72 a week for nursing care payments, but otherwise, the amount you pay for nursing home care is means tested. This time, the value of your home will be included unless any surviving spouse, relative under 16, aged over 60 or incapacitated is still living there. In England the upper limit is £23,250, in Wales £22,000, Scotland £22,750 and Northern Ireland £23,250.
With this in mind, it may pay to alter the way you own your home later in life. Rather than owning the property with your partner as "joint tenants", which means that upon one person's death the other automatically receives that share, you could change this to "tenants in common" so that you are free to give your share of your property to anyone you like. If your partner died and left his or her share to children, or placed it into a trust, that share of your home could be excluded from the means testing if the surviving partner later needed care. The council must look at the market value of the home but will be able to take only half of your home into account.
There are some non-means-tested benefits available including attendance allowance for over 65s or disabled living for people under 65. The state will normally pay for the first 12 weeks of care but there is some shortfall to make up. Beyond this, the only way to meet care home bills is to use savings, investments and property, or take out insurance.
"People should firstly ensure they have sufficient cash to meet their short-term needs," says Danny Cox from IFA Hargreaves Lansdown. "This may be between 10 and 25 per cent of their total liquid assets and is likely to get larger as they get older. Cash ISA and certain NS&I products are tax free which could help improve the returns. The downside of most cash savings is that their spending power falls over time due to inflation."
For longer-term investment a stocks and shares ISA is a tax-efficient way to generate an income. Up to £10,680 can be invested in ISA per tax year (of which £5,340 can be cash) and this rises to £11,280 in the next tax year. "Unit trusts are the next choice since generally the rate of capital gains tax paid is lower than the rate of income tax paid," says Mr Cox. "Gains of up to £10,600 can be realised a year without any capital gains tax to pay."
In the run-up to retirement there are no pre-funded products available to prepare specifically for care fees, and those that were available in the past didn't sell. At this stage in life many people don't have enough disposable income to save for a pension, let alone long-term care.
"Post-retirement, say, from age 65 to 85, the situation is quite similar except that they may well have built up a substantial asset – their home – and might choose to release some of that equity to fund care," says Mr Horlick.
This cash can be used to pay fees directly, or to take out an immediate needs care plan, although there are only two providers: Partnership and Friends Life. This is a type of annuity which makes (tax-free) payments directly to the care provider until you die. So, your care fees are guaranteed for life and you won't need to move into a local authority care home. The flipside is that these are expensive – Partnerhsip's average premium this year was about £100,000 – and if you die shortly after going into care, you may not recoup the money.
If the Dilnot Inquiry suggestion of a cap on the cost of care does come in, this could encourage more insurers to cover this type of risk. If they are covering a limited sum it should make these policies much more affordable. Until then, however, many people could be forced to sell their home. You can release equity if you don't want to sell, but this can be an expensive option.
"The Dilnot report set out an ambitious but achievable plan. We now need the Government to act on it," says Michelle Mitchell, the charity director of Age UK. "It will have a direct impact on current and future generations of older people and they will stand in judgement if the Government holds off any longer."
Michelle Mitchell, Age UK
"Many people don't realise care isn't free until they reach the point when they need it. One in 10 people are likely to pay over £100,000 on care costs in old age. This is a huge cost that needs to be considered when planning for later life."
What you can do?
*Start early and you may have time to build up a big enough pot to cover care fees without having to sell your home or take out an annuity. Use up your tax-free ISA allowance and consider investing in stocks and shares rather than cash as this is likely to beat cash over the long term.
*Be Prepared: If you have a partner keep your savings in separate accounts to avoid any problems with local councils using joint accounts to assess your ability to pay for care. Don't forget inheritance tax – you are allowed to give some of your assets to family and friends (including £3,000 cash each tax year plus gifts of up to £250 a person). But be warned: the taxman won't be happy if you do this deliberately to avoid paying care bills.
*At the point of needing care put in a claim for attendance allowance, for people aged 65 or over, worth either £49.30 per week for daytime help, or £73.60 per week for help during the night.
*For security you can take out an immediate needs care plan but there aren't many providers to choose from, so speak to an adviser before signing up. You may need to use your property to free up more cash. You can sign away some or all of the value of your home to an equity release company in exchange for lump sum or regular payments but, again, you must seek independent advice first.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
- 1 What marriage would look like if we actually followed the Bible
- 2 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 3 The Chinese city where men have 'three girlfriends because there are so many women'
- 4 'Heartbreaking' Syria orphan photo wasn't taken in Syria and not of orphan
- 5 Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition
Britain to take more refugees as Cameron bows to pressure after more than 250,000 back our campaign
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Make your voice heard: Sign The Independent's petition to welcome refugees
iJobs Money & Business
£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
Day In a Page
This five-bedroom home in Sutton Coldfield is arranged over three floors, with a detached garage to the rear and a driveway at the front of the property.
In an elevated position above the bay, this four-bedroom home offers sea and headland views. There is a decked balcony and sun terrace - plus coastal walks on the doorstep.
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.