Saving for the future is something we all do to build financial security for later [...]
How much do you want to leave to your children?Created by Margaret Stone in Saving for you
How much do your children rely upon the inheritance they expect from you?
These questions go right to the heart of the big issue debate on capping nursing home care costs in order to stop ‘the scandal’ – the words of Health Secretary Jeremy Hunt – of elderly home owners being forced to sell their homes to meet nursing care fees.
The £35, buy cialis 000 cap recommended by the Dilnot Commission last year has been sunk without a trace. Instead the Government is proposing, from 2017-18, a cap of £75,000 for families with assets of no more than £123,000.
I’m sorry, Mr Hunt, but your well-intentioned proposals to put the lid on a can of worms will open up others.
Yes, the current situation where an elderly person with assets of £23,250 or more has to pay for all their nursing care costs is scandalous. It disregards the fact that anyone who has worked, saved, paid National Insurance contributions and has generally not been a burden on the state, gets no help while person on the flip side of the coin gets nursing home costs virtually for free.
The new scheme might redress that particular injustice but it replaces it with another which is equally distasteful. There is a new breed of ‘winners’ in the system. The very rich will benefit disproportionately. They will preserve most of their savings and investments while the likes of you and me, people with modest means will spend a higher proportion on care.
In theory I dislike ‘means-testing; in practice, particularly in these tough economic times, there is a strong case to be made for it. To digress, the universal winter fuel allowance, which is payable to UK pensioners be they millionaires or living in a European sunspot, is a classic example of why means-testing is sometimes appropriate.
The same is true when deciding how much the state and how much the individual should contribute to the nursing home care costs of their final years. All the figures on this subject are daunting, starting off with the one we all want to ignore: 1 in 3 of us will spend our twilight years in a nursing home.
Costs are frightening. You are looking, on average, at £600 a week, over £30,000 a year. In London and other expensive areas, the figure is more likely to be over £40,000 a year. The breakdown between nursing care, which is covered by the proposals and ‘hotel’ care which is not, is estimated at least half of the total bill, if not more.
However, given the average occupancy in a nursing home is 30 months, they will be many elderly people who will not benefit from the new cap. They’ll have had to have met the nursing care fees out of their own pockets in the early years and not have reached the level where the £75,000 cap kicks in before they die.
The financial services industry’s solution is immediate needs insurance. Basically it’s annuity where you pay a fixed lump sum premium and receive an income for life from it. With a specific immediate annuity the money is paid directly to the nursing home thus eliminating the tax, modest to the older one is, if the annuity is paid directly to you.
Again, the figures are mind-blowing. At age 60, to receive an annuity payment of £30,000 a year rising by 5% pa, the premium would be around £250,000, dropping to around £200,000 if you start the insurance at aged 80. There will be some return of premium to your family if you drop dead within six months; on the other hand, should you live for another 10 years, you’ll be quids in.
In fact, it’s all a gamble. We don’t how long we’re going to live and we don’t know if we will need nursing home care in future. And without this information, specific planning is difficult.
However, it is all tied in with my first questions. It is time to look at the fundamentals: have you made a will? Have you looked at the nitty gritty of inheritance tax and how it applies to your estate? And what lifetime steps are you taking to pass your wealth down the generations?
By Margaret Stone