Interactive Investor

Cost of care among biggest financial concerns for retired

23rd November 2021 10:54

Rebecca O'Connor from interactive investor

ii research shows almost a third of retired people rank the prospect of not being able to afford good-quality, long-term care among their top three financial concerns.

As the government unveils an update to its social care cost cap plans that will see an individual pay up to £86,000 towards care, interactive investor research shows that almost a third of retired people (31%) rank the prospect of not being able to afford good-quality, long-term care among their top three financial concerns.

According to interactive investor’s Great British Retirement Survey, 29% of retired people said a further key concern for them was money they would otherwise leave to relatives going on long-term care instead.

Not being able to afford healthcare costs when needed was another top three concern for a quarter of retired people (25%), according to the survey of more than 10,000 people.

The cost of care ranked as the most troubling financial worry to 12% of retired respondents, above the rising cost of living, tax and not being able to help out younger family members with large expenses. Only the prospect of running out of money (15%) and falls in the value of stocks and shares (23%) were more concerning to retired people than care costs, the survey found.

Working people are less likely to say that care costs are their biggest financial concern, with 9% putting this top of their list of worries. They are more concerned with running out of money in retirement (23%), falls in the value of stocks and shares (23%) and the rising cost of living (12%) than care costs. The lower ranking of care costs as a concern among the non-retired population suggests, not surprisingly, that this issue looms larger the closer someone is to the point of need for care.

This Carer’s Day (25 November), interactive investor is urging working people paying into pensions and investing in ISAs to factor in the potential cost of care when planning for retirement. The government proposed a care cost ‘cap’ of £86,000 in September this year and revised the proposal this week so that the first £86,000 of care will all be paid for by the individual, rather than including a share paid by the council.

The £86,000 cap represents just under half (46%) of the £185,000 pension pot that a graduate paying 8% of their salary into a pension every year from age 22 to age 68 could expect to retire on. To boost their pension by enough to cover care costs and retain the original amount of £185,000 towards retirement income, they would have to contribute 12% of salary rather than 8% every year. It’s possible to increase your own pension contributions up to the level of your annual earnings or £40,000, whichever is lower, even if your employer will only pay in up to a certain amount. It’s also important to remember that income taken from a pension is taxable at your marginal rate, whereas money taken out of ISAs is free of income tax.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “It’s very difficult planning to cover care costs because you can’t know if you are going to need it or not.

“The findings from the Great British Retirement Survey show that concerns about the cost of care play on people’s minds. There are limited ways to pay for it. Many people would understandably prefer to pay for it out of unused ISA and pensions balances rather than selling their home or taking an equity release loan. However this requires contributing even more when you are fit, well and working, so that you can have enough both for retirement income and potential care costs.

“If you do need to pay for care, this can of course significantly eat into what you can leave from your pension or other investments to relatives. The survey shows that this is also a concern, but less so, perhaps because of an understanding that there is very little anyone can do about how much care they are going to need in order to protect an inheritance for loved ones. This is something to bear in mind also for younger generations who might be expecting to receive an inheritance. They need to be mindful that this can’t be taken for granted because of the potential bill for care.”

Help with the cost of caring:

  • If you opt to be cared for at home and a partner or other relative cares for you, giving up their work, they need to apply for Carer’s Allowance, which is designed to cover the loss of income from other work and help with certain living costs.
  • Check eligibility for Attendance Allowance and Personal Independence Payments.
  • Being in receipt of Attendance Allowance means you could also be eligible for help with other costs, for example, reduced council tax. Find out more about benefits for the over 65s here

Notes to editors:

  • The Great British Retirement Survey ran from February to July 2021, gathering responses from more than 10,000 people. The full report can be found here

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