The above was a worrying, and yet an entirely unsurprising headline to a September article from the respected consumer watchdog, Which.
Huge increases in care costs
The report, based on Laing Buisson research revealed that the average weekly cost of residential care homes in the UK rose by an alarming 19% between 2021/22 and 2022/23.
This represents an increase of around twice the rate of inflation which peaked at 10.1% in October last year.
The research analysts considered the average fees charged by for-profit care homes for both older people and those with dementia. This included costs for both publicly funded and self-funded residents. Of course, the cost of care varies between residential and nursing care homes but while nursing care costs had risen by 3.5% it was residential care prices that had shown the steepest inflation.
Why are costs rising so much?
The two most significant factors have been the soaring energy bills in this period coupled with staffing costs, both of which have been exacerbated by the cost-of-living crisis. The fact that care employees are often being paid the minimum wage for long hours for difficult and emotionally draining work amid the crisis has hit staff retention as well. Replacing them is expensive, particularly when recruiting from traditionally higher paid sectors such as retail or hospitality.
A sizable percentage of homes in the care sector are still mortgaged and the increased cost of commercial borrowing, has squeezed the profits for owners. As day follows night to retain margins these increased costs for the owners will invariably be passed on to the residents.
Costs in our region
At Matrix Capital, whilst looking after clients across the country, we are proud of our Shropshire roots, and we support and advice both clients and work with professional colleagues across the region. However, the increasing cost of care is not uniform, and we need to be mindful of that in the communities we both serve.
For example. In 22/23, the average cost per week of a residential care home in wider West Midlands is £770, up 13.02%, whilst in the East Midlands it is £790, up 13.67%. (These figures are the Laing Busson research used in the Which report.) We should be grateful the costs for the communities we serve have risen at a lesser rate than the national average, but the situation still represents a problem for many families.
What about the planned cap on care costs.
Remember when Boris Johnson was Prime Minister? Amazingly, it was only 2 years ago that BJ promised to cap lifetime care costs at £86,000. Behind the snappy eye-catching headline of course, was the small print that that amount would not include food or the accommodation elements of the care costs. The then PM, as we are sure you will recall, had also planned to raise the asset threshold, (the amount you can have before are entitled to local authority support,) from £23, 250 to £100,000.
Sadly, this commitment was made prior to the war in Ukraine, the huge rise in the price of oil, and the ensuing cost of living crisis. This was to be funded by an increase in National Insurance contribution to be known as the health and social care levy.
Two years and two PMs later, the enthusiasm from the Conservative Government for the promised reforms and support, has dwindled and somewhat been kicked into the long grass. The levy was swiftly scrapped, and the lifetime cap has initially been postponed until 2025, although there is not widespread confidence in this. We may if the polls are to be trusted, even have a new party in government by then.
In the Which piece, a concerned Director of Age UK, Caroline Abrahams was quoted: -
‘It would be fairer to the public for there to be a clear statement of intent from the Prime Minister either way rather than leaving the cap hanging and people facing huge bills wondering if relief is in the way. In the meantime, it would be wise for individuals not to bank on the hope that a cap will be introduced because we simply do not know if it will happen or not.’
Planning will mean saving.
Age UK are sadly on point, and quite obviously individuals and families will need to plan for the cost of care, particularly with the uncertainty around future assistance and support described above. However, such advanced planning, whilst essential, is even more difficult than working out how much money you need to have accumulated to retire in comfort. Life expectancy is ever changing but it can help us at least estimate how long one might live in retirement, but for how long in that overall time, you might need care and for how long is trickier. Although we do know that the average life expectancy in care homes for those over 65 is 4.4 years.
Around half of all care home residents have costs fully or at least in part covered by their local authority, but these are not the clients we see at Matrix Capital, or indeed the ones you may refer to us for advice. As a financial planner we are committed to specializing in this advice arena and will use our experience and tools such as cash-flow modelling with your referred clients. Indeed is why Robin Melley is an accredited member of the Society of Later Life Advisers, and why Matrix Capital is committed and founding member of the Consumer Duty Alliance.
Self-funding for care.
The simple truth is that an early and collaborative approach between solicitor and financial planner, can help clients, and their families or attorneys, who are understandably concerned about this issue. If local authority support and indeed NHS Continuing Healthcare, for those with complex medical needs are not available, them planning is essential.
As financial planners we have wide and varied options available to us. It might be a carefully structured investment portfolio, or one utilizing tax efficient vehicles or certain investment bonds, which feature care funding options. It may be an immediate care annuity or even releasing funds from the family home. In many instances it can be a combination of the above which are appropriate for the client or clients, and at Matrix Capital we will always be mindful that these individuals can be anxious and feel vulnerable.