While the later stages of retirement may seem a million miles away for some of your employees, there are some “big ticket” costs many are bound to face. One such cost is later-life care.

Indeed, the number of people needing later-life care in the UK is on the rise. The King’s Fund reported that 1.9 million people applied to their local council for support in 2019/2020. That is an increase of 100,000 since 2015/2016.

As life expectancy rises, the number of people needing care will likely continue to grow. It is important that your employees factor the cost of this care into their retirement planning, even if they may not need to foot the bill for some decades yet.

Unfortunately, many employees don’t realise how much their care will cost, and as a result, are not saving enough for it.

So, as an employer, providing useful information about later-life care can help your team plan for their futures.

Here are three reasons employees should prepare for later-life care costs now, not later.


1. The state can provide free care, but not in all circumstances

Many people take comfort in the fact that the state provides medical care for those that need it. But your employees may not realise that not everybody is eligible for free later-life care.

As it stands in 2023, the state does offer some help paying for your employees’ care, but most support is means tested and many people don’t qualify.

According to the NHS, at the start of the 2023/24 tax year, you are not eligible for free care if you have more than £23,250 in income and savings. The means test considers savings, including half of any joint accounts, and income from pensions and investments. If you are moving into a care facility, the means test may also include the value of your house.

Here is what your employees will have to pay, based on the means test.

  • If their total capital is more than £23,250; they must pay for all their own care costs.
  • If their total capital is between £14,250 and £23,250; the local authority provides some financial support, and employees contribute some of the cost from their income.
    They may also have to pay an additional “tariff income”. This is an extra £1 a week for every £250 they have over the £14,250 limit.
  • If their total capital is less than £14,250; the local authority provides some financial support, and they contribute some of the cost from their income. They do not have to pay the additional “tariff income”

Source: https://www.moneyhelper.org.uk/en/family-and-care/long-term-care/means-tests-for-help-with-care-costs-how-they-work

Importantly, the upper limit for the means test is set to increase from £23,500 to £100,000 in October 2023, but many people will still exceed it, especially if the value of their home is considered. Also, a growing population and increasing life expectancy may put more pressure on care funding, so the means testing may become stricter in the future.

What’s more, in 2017, Statista[1] found that people aged between 55 and 64 had an average of £37,000 in savings. Those aged between 65 and 74 had an average of £49,000.

Based on these numbers, the average employee approaching retirement age would not qualify for help with their care costs. However, if the upper limit does increase, some help is likely to be provided here (note that this is never guaranteed, as the limit is always subject to change). So, preparing to pay for at least some of their own care could put your employees on a smoother path.

Remember, employees that are in their 40s and 50s may still have 30 to 40 years before they need support, so there is no telling what free care will be available when the time comes. As such, counting on the state to cover the cost of later-life care could be a risk.

Fortunately, if you give your employees access to advice on planning now, you can help them increase their financial stability later as they may be less reliant on limited state support.


2. Your employees may underestimate the cost of later-life care

Many of your employees might underestimate the cost of later-life care, perhaps leading them to under-save. Indeed, a government report states that 1 in 10 people will face costs of more than £120,000. Although many people will pay less, the cost is still significant.

The average monthly cost of care, according to Carehome.co.uk, is £2,816 a month for residential care and £3,552 a month for a nursing home.

What’s more, some people also require in-home care before they move into a care facility full-time, so employees may wish to consider this cost too. According to Age UK, the average cost for this is £15 an hour.

In October 2023, a cap of £86,000 will be put on the amount people pay towards their care to help control costs. This is equivalent to roughly three years of care costs.

According to the Office for National Statistics (ONS), men and women have an average life expectancy of 3.9 and 5.3 years, respectively, once they go into care. So, there is a chance that your employees will have to pay out the full £86,000 down the line.

This large outlay could eat into your employees’ retirement savings and have an impact on their quality of life in the future. Educating them about how much they are likely to pay could make their later-life care far more manageable. Having the funds set aside for care means they don’t have to dip into other savings, so they can enjoy their later years and experience everything they planned to in retirement.


3. Planning for later-life care costs can maximise your employees’ financial stability in retirement

According to Canada Life, 44% of people say they will only start thinking about care when they or a family member gets ill. But this could cause financial problems in retirement if they must absorb a huge cost they haven’t planned for.

Unfortunately, those that have considered how they will pay for later-life care often rely on strategies that may not work. A different report from Canada Life asked over-60s how they planned to pay for their care:

  • 27% expected to use their State Pension.
  • 25% planned to use cash savings.
  • 14% would sell assets.
  • 9% would release equity from their home.
  • 5% would use an inheritance.

Depleting their savings or selling off assets can be risky and may limit their options in retirement. Also, the State Pension pays a maximum of £203.85 a week in 2023/2024, which is far less than the average care home cost.

If your employees are unable to pay the cost of their care, they may have to enter into a deferred payment agreement (DPA). This is when the cost of care is deferred until after they die. Then, their house is sold, and the funds are used to pay what is owed.

Thankfully, these issues can usually be avoided if they plan early and build up enough cash savings to cover their care costs. By offering financial advice as a workplace benefit, you can guide employees as they explore the different options for paying for later-life care.

With the right tools and information from you, they can create a safety net that could cover any care costs they may have. So, they can enjoy travelling, finding new hobbies, and spending time with family in their later years, instead of worrying about care costs.

Get in touch

For advice on how to help your employees manage their retirement plan, contact us. Email info@second-sight.com or call us on 0330 332 7143.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Information correct at time of publishing, 26th April 2023.


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