Towards the end of June, a report published by the Resolution Foundation concluded that the average British pensioner was £1,000 a year better off in 2024-25 than they were when the Conservatives came to power in 2010.
The report calculated that over the same period the number of people claiming a state pension had risen by more than half a million, to 13 million, and is on course to hit 13.2 million by 2028-29. The Resolution Foundation maintain that this steady rise in retiree numbers is directly responsible for a noticeable shift in public spending which, it says, is gradually tilting towards pensioners, although there’s little need to get the bunting out of storage just yet.
For a start, once the £1,000 increase in an average retirees’ annual income is taxed, the net annual figure is reduced to £800, a mighty £15.38 a week. Let’s face it: fifteen quid is unlikely to fund even a couple of cinema tickets, although you might, however, spend an Albert Tatlock-esque evening sat in the Rovers Return pub (or similar) nursing half a pint of mild.
Nor is this £800 going to make anything other than a negligible contribution to one of the biggest concerns harboured by Baby Boomers: the scale of care costs.
More likely, it’s reasonable to suggest that the deep chasm between public funding of social care and the increasing needs of an ageing population will widen significantly over the coming decades.
Whereas a large number of people set aside savings or contribute towards a pension to provide for a comfortable retirement, it’s a sad fact that only a small number are adequately prepared for potentially enormous care costs in their later years.
For people with a protracted need for care, the bill can grow to such levels it becomes completely unaffordable.
State-funded arrangements for those seeking help with care costs have undergone several revisions over the last three decades as life expectancy has risen steadily. Presently, to qualify for financial assistance when moving into care, the level of a person’s assets, an assessment which includes a valuation of the family home, must be £23,250 or below. This figure is known as the ‘upper capital limit’ (UCL). The arithmetic is similar even if you require care at home. In such circumstances, the value of your means-tested assets must not exceed £23,250; the actual level is determined by your local authority.
From October 2025, the UCL will rise to £100,000, while a notional cap (of £86,000) on care costs is also scheduled to be introduced in autumn next year. This means that people in a position to do so will not need to spend more than £86,000 on their personal social care over their lifetime. Yet even this seemingly substantial financial buffer could soon be decimated by soaring social care costs
Spend some time online and you will discover that responses to burgeoning later life care costs range from the naïve to the startling.
On the one hand, there’s a sizeable proportion of people who have adopted a ‘it’ll never happen to me’ approach and remain happy to bury their head in the sand, presumably in the hope that they’re right. Others insist that if they do require care, they’ll die suddenly, or relatively quickly, before they’ve run up a massive bill.
According to a poll conducted by the Local Government Association, “Half of the public polled have little or no understanding of what social care means, whilst only 15 per cent of people are making plans to pay for their care in later life.”
Another recently published report found that more than half of those surveyed believe their basic state pension, worth around £170 a week, is the most likely source of income for funding care costs. However, average weekly care home fees are currently £1,078; if nursing care is required, the weekly cost rises significantly.
In a paper examining how people could pay for these steadily rising costs, the Association of British Insurers (ABI) have made a number of proposals. These ranged from the introduction of a ‘Care ISA’, to tax relief on pension income used to pay for care costs. Four of the proposals required legislation to become law; one, however, effectively exists already.
The ABI suggested that people aged 55 and over could be given the opportunity to release equity in their home to insure against care costs. “With no government intervention required through tax incentives, it may be possible that this proposal could be offered by providers now,” said the ABI.
According to the annual figures issued by the Equity Release Council, homeowners continue to release upwards of £40 million a year from their homes to pay for care costs, a figure which suggests that plenty of people have already recognised a potential future problem and done something about it.
Equity release is not a panacea, nor is it the only option for funding care costs, but the process already exists; in other words, homeowners are not reliant upon fresh legislation to release a tax-free lump sum from their homes and use the funds however they wish.
Before taking matters any further, however, it would be prudent to speak with a qualified equity release adviser who can explain the advantages – and possible pitfalls – associated with the process of releasing equity from the home. Frankly, it’s a much better option than burying your head in the sand and hoping that when it comes to paying for care costs, it’ll never happen to you.
