Caught in the Care costs trap

The elderly in care have to deal with falling house prices, low interest rates and soaring care home fees.

Increasing numbers are facing heart-breaking decisions of risking their children's future inheritance to pay for their parents care.

These families are caught in a generation trap which has forced them to choose between moving a parent from a good care home where they are well looked after, or digging into savings set aside to give their own children the best start in life.

The situation is made much worse by cost-cutting local authorities. Private care homes are increasingly charging higher fees to self-funders to subsidise low payments for council-funded tenants.

The gap between the cost of care and what local authorities are prepared to pay is growing. As we are hearing of and seeing ever increasing numbers of people who are having to use their life savings to pay the difference when Mum or Dad runs out of money.

In the past 5-6 years alone, the gap between the income families have available to pay for care and the fees charged by homes has increased dramatically for those in residential homes.

For those in nursing homes, the affordability gap has widened by 200% over the same time period as fees for care homes have risen by more than 20% since 2005 alone.

This widening gap has been caused by a mixture of falling incomes and increasing care home fees.

5-6 years ago, fees for nursing homes were £29,851 a year on average, now they can be as much as £36,036 — an increase of 20.7% — according to healthcare analyst Laing & Buisson. Costs for residential care have risen from £21,546 a year to £25,896 on average, a 20.2% increase.

Meanwhile figures from the Department for Works and Pensions show the income a 75-year-old can expect to receive has been slashed by 27%. Their average income is now just £15,574 against an average £19,843 in 2005.

This sum is made up of benefits, the State pension, private pensions and interest on savings. It includes interest on the proceeds of the sale of their homes which those funding their own care are forced to do to meet fees.

The main cause of this drop has been the precipitous fall in savings rates from around 6% to less than 0.1%. Annuity rates being offered on pension savings have also fallen. And prospects for families coping with putting parents into care are made grimmer by the stuttering and near unpredictable housing market.

Creating a system which is both affordable for individuals and taxpayers, and for people to have better options for protecting their assets from the risk of very high care fees.

Falling or unpredictable house prices, low interest rates and all round above inflation increases in care costs. This can quickly deplete their capital and land them at the door of local authorities who are already cutting back on their spending.

As once the savings of residents of care homes falls to £23,250, the council then must start helping.

In Scotland, the limit is £22,750 and in Wales, £22,000. One of the problems is that cash-strapped councils are limiting how much they're prepared to pay for places in a home in their area. This leaves self-funders being charged more to subsidise those paid for by the local authority. Therefore, increasingly, the families have to step in and pay the difference between the council's set rate and the care home's fees once their elderly relatives run out of money.

Families should take specialist financial advice to make the best use of savings to cover care costs and so receive all the benefits to which they are entitled.