If your relative is going to pay their care home fees, he or she might be able to claim some benefits and allowances. They might also consider taking out an immediate needs annuity and/or let their home to help foot the bills.
If your relative has capital (savings and assets) worth more than £23,250 (in England and Northern Ireland), £26,250 in Scotland or £30,000 in Wales (2017-18), or a weekly income high enough to pay for care home fees, they will not be eligible for local authority funding. If this is the case, they will have to pay for their own care. This is called self-funding.
On this page we tell you about:
1. How much choice your relative will have
2. Benefits and allowance to help with living expenses
3. Immediate needs annuity
4. Letting a property
5. What happens if my relative runs out of money?
6. Seeking financial advice
How much choice will your relative have?
Self-funding a care home is quite common, and around two-fifths of places in independent care homes are funded by private individuals.
If your relative is self-funding they are free to choose their own care home, which usually means they will have a wider choice than that of people funded by the local authority. However, if your relative needs support in finding a care home, the local authority can help to find somewhere suitable.
There are a number of things to think about if your relative is self-funding.
Benefits and allowances to help with living expenses
Make sure that your relative is claiming all of the benefits and allowances they are entitled to, as these can help with living expenses. People who are funding their own residential care and are aged 65 years and over may still be able to claim:
Immediate needs annuity
Also known as an immediate needs care fee payment plan, this is a type of insurance policy that provides your relative with a regular income in exchange for an upfront lump sum investment, rather like a standard retirement annuity. The income is tax free when it's paid directly to a care provider and will provide a guaranteed income to pay for care costs for life.
Care Needs Care Now Campaign
The care system is failing to provide the support that we and our loved ones need. We're calling for action on care. Help us confront the care crisis by backing our campaign now.
The downside is the fact that insurers base their pricing on how long they expect someone going into care is likely to live for. So while an immediate needs annuity brings peace of mind, there is also the risk of 'wasted' premiums if your relative dies prematurely. Of course, you may feel that the peace of mind that comes from knowing you won't run out of money makes this a price worth paying.
The cost of an annuity like this varies considerably between provider and also depending on your relative's health and age. Your relative should discuss their options with a specialist independent financial adviser who holds a CF8 qualification, which is the minimum qualification that an IFA advising on long-term care should have. We also suggest that you look for an IFA with the Society of Later Life Advisers (SOLLA) accreditation.
It is also possible to insure against premature death by buying a guarantee, which returns 50% of the outlay on the early death of the person insured, but the cost can be prohibitive.
Letting a property
If your relative doesn’t want to sell their home or they have a second property, they might want to consider renting it out to get extra income. It is a good way to increase income and reduce the rate at which savings are used up, but it’s important that you consider what would happen if there are periods when the property isn’t let.
See the Which? Consumer Rights guide to letting a property for further information.
What happens if my relative runs out of money?
The first thing to do is for your relative to contact their local authority to ask them to reassess their needs (if your relative hasn’t been assessed already, everyone is entitled to have an assessment, regardless of how the care home fees are being paid) and also do a financial assessment. If the local authority then has to step in to pay your relative’s fees, he or she might have to move to a lower cost care home where the local authority is paying for rooms.
However, as well as showing that the new care home will meet your relative’s assessed eligible needs, the council also needs to carry out a risk assessment. The purpose of this is to check that such a move won’t affect your relative’s wellbeing, whether this is physical, social or mental.
Following these assessments, it might be the case that the local authority determines your relative should stay in their current care home. They should then increase their payment rate to cover the higher fees.
If a move to another care home becomes necessary, you might decide to look into third-party top-ups to enable your relative to stay in the same care home. You would need to discuss this with the local authority.
Seek financial advice
If your relative is faced with funding their own residential care, it would be beneficial for them to seek independent financial advice. The Society of Later Life Advisers (SOLLA) provides specialist advice for older people looking to fund care.
An independent financial adviser (IFA) will review your relative’s financial situation to help them meet care costs and plan for the future. They can make sure that money is being invested wisely, advise on the best way to deal with property and also advise on the availability of immediate need care fee payment plans.
Get a Will from Which?
If you are involved with helping your relative manage his or her financial affairs, perhaps now is a good time to be thinking of making a will for yourself if you haven’t done so already. Make sure your treasured possessions go to the ones you love – see how we can help at Which? Wills.
If your relative has assets over the capital limit, it might be tempting to give things away to reduce their capital and become eligible for local authority funding for care. However, it is important to be aware that there are strict guidelines on Gifting assets and property.
Which? guide to helping loved ones in later life
If you are looking for ways to help a relative stay living at home for longer, or need to find out about the different care options available, this downloadable guide explains your choices and how to find out more. It offers an introduction to choosing sheltered or residential care, plus advice on choosing the best products to aid independent living.
- Getting local authority funding for a care home and explain the criteria for when government or NHS funding should be available.
- Calculating your relative's capital and income: read this for how to work out if your relative is likely to be self-funding or not.
- Choosing a care home: how to make an informed choice.
Page last reviewed: February 2017
Next review due: July 2018