Firestyle Magazine Issue 3 - Spring 2016 | Page 22

Finance

In this second feature Paul Brady, DipPFS a partner
in St James’s Place Wealth Management looks at

PROTECTING YOUR SAVINGS
AND ASSETS IN LATER LIFE
I am worried about losing all my
savings and even my home should
I have to go into a care home
later in life? Having worked and
saved all my life – what can I do
to protect my assets and not be a
financial burden to my family?
Addressing the issue of long-term
care could be your greatest
legacy. The number of British
people aged 75 or over is
expected to double by 2030.1
Yet few of us are adequately
prepared for an extended old
age, whether in terms of saving or
preparing for accommodation or
care needs.
Most of us will see a financial
adviser about our pension, but
in general we don’t want to
think about getting old and we
certainly don’t like to imagine
ourselves being unable to live
independently. But if you don’t
save, or don’t think about the
costs of care, the reality is you
might not get what you need or
would want.
Currently, if you need end-oflife care, your local authority will
carry out a means test to work
out who pays – but regional
differences are considerable. If
you live in England, for example,
and your capital and savings are
above £23,250, you will have to
fund the cost of personal care
and accommodation yourself. In
Scotland, the personal care you
receive in a care home is free if
you’re over 65, but you’ll have to
pay accommodation costs if your
capital and savings are more than
£26,000. Clearly you don’t need
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to be rich, or even moderately
wealthy, to have to pay towards
your care costs.
The Care Act means a cap will
be introduced in 2020 on what
people should have to pay for
care themselves. Social care is a
devolved matter for Scotland so
the Care Act generally applies
only to local authorities in England,
Wales and Northern Ireland. The
reforms are intended to help people
make informed choices about the
best care options for them, and to
enable them to pay in a way that
suits them. The government had
hoped this would stimulate a market
for end-of-life care; not many
products have since been created
but some insurers are starting to add
an element of care provision to their
life insurance plans.
‘Whole-of-life’ policies pay out
a fixed sum on death to cover
the financial impact of losing a
family member. These options
are commonly used to meet
Inheritance Tax liabilities and funeral
expenses. However, some are
evolving to help meet the costs of
care. Some whole-of-life policies
now pay out a reduced sum early
if you have been assessed by a
medical specialist as suffering an
illness, accident or infirmity which
leaves you unable to perform
everyday activities.
Whole-of-life cover is usually
arranged 10, 20 or 30 years in
advance, whereas other options for
later-life protection are taken out at
the point of need. One of the most
underused solutions is an immediate
needs annuity (INA).With an initial
lump sum payment, you can take
an INA out when care is required
and thus ensure a guaranteed
income for as long as care is

needed. Although it’s got the term
‘annuity’ in it, is not like a traditional
annuity. It is not based on interest
rates, which are currently at historic
lows. It probably won’t cover all of the
care costs, but it pays very high levels
of return – anything from 20% to 25%
– and it is tax-free if the money is paid
directly to the care home.
Of course, you could just use your
investments such as ISAs and unit trusts
to pay for care. But that doesn’t give
you the reassurance of an immediate
needs annuity. But, INAs are not
without disadvantages – in the case
of death, they don’t get passed on to
beneficiaries.
A quarter of people should need to
spend very little on care, but one in
ten will have more serious needs and
could face care costs in excess of
£100,000.2 While selling your home
could be an option to free up the
money needed, many view this as
a very distressing last resort, so it’s
important to anticipate future care
needs and buy the right kind of
financial protection.
Even if you do have to pay for
care, you may still be entitled to
some benefits like the attendance
allowance and the personal
independence payments.
Individuals should always seek
financial advice before arranging
later-life protection. Your local
authority should be able to provide
you with more information on
claiming benefits and care services in
y