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This is part four in a series on how to plan and pay for the cost of social care in later life.

Part one covered the gulf between genuine care needs and State provision. 

Next part two untangled how the means test values your assets (including pension and property) and when it excludes them. 

Part three explained when you qualify for State funding and when you don’t.

Now we’ll help you estimate an average care home cost that can be used to stress-test your retirement plans.

When I retired, I didn’t know if my financial plan could withstand years of one of us living in a care home. I just crossed my fingers and hoped that we’d never need to find out.

Or perhaps we could sell our house if there was no other way?

In retrospect, that was no plan at all. And now I’ve dug into it, I’ve found the data does exist to formulate a plausible lifetime cost for social care. 

In this post, I’ll show you how to construct your own number. You can then model how your own retirement finances stack up against the hard realities of the UK social care system. 

I’ll focus on the cost of funding a care home because that’s the nightmare scenario that can suck your own home into the means-testing mix. 

But I’ll present care in the home data at the end, too.

Caveat corner – Any number we come up with will necessarily be a crude average. Obviously the future cost of social care for any individual is unknowable. But as ever, it’s better to be roughly right than precisely wrong. The number we can conjure is informed by the best data available, and the exercise itself sheds valuable light on some of the challenges you may face. Demystifying the social care financial threat has reduced my fear of this unknown, and left me better equipped to negotiate it, should it affect me or my loved ones. Note we’ll root our numbers in today’s prices. Even if the spectre of social care lies decades in your future, your assumptions must rest on how your financial plan deals with the system as it exists today.

How to calculate care home costs

Here’s the process:

Take the average annual cost of a UK care home place
Multiply by life expectancy once in a care home
Up-weight by care home fee inflation 
Customise by gender, age, type of care (nursing and dementia care both increase cost), and geographic area to account for the postcode lottery

The average annual care home cost is:

£34,944

That number comes courtesy of Which and Paying For Care.1 Their source is LaingBuisson’s Care Homes For Older People UK Market Report

The report is an annual snapshot of the care homes market produced by business intelligence firm LaingBuisson. The data is widely used in the social care sector, including by the UK Government. 

Note that £34,944 is far from a worst-case scenario. 

The ‘average’ worst-case scenario is dementia care in a south-west of England nursing home: £58,864.

That’s £4,000 more expensive than the same care in a south-east of England nursing home. 

The best case is the £28,392 cost of a care home in Northern Ireland – no nursing care or dementia care included.

Paying For Care enables you to customise costs by region and care type.  

Terminology tee-up – Care homes typically offer personal care. That’s a defined and regulated service that supports people with tasks such as washing, dressing, and going to the toilet. Nursing homes are registered to provide care that requires a nurse. Dementia care is another service again. In reality, this distinction by provision is not clear-cut. A single care home may provide all these services.

Add the self-funder premium

The care home industry’s worst-kept secret is that those paying from their own pocket (self-funders) are charged more for the same care, in the same homes, as state-funded residents.

That’s because local authorities – grappling with squeezed budgets – use their buying power to pay the care homes less than the market rate. 

The squeezed care homes then make up the shortfall by squeezing self-funders.  

Yes, it’s another hidden tax2 that props up social care so long as our politicians fail to fix the system. 

Back to the data. 

The £34,944 average annual care home cost combines state-funded and self-funded places. 

So we must add a self-funder premium – because few of us will qualify for local authority support until our assets have been rundown. 

How much is the self-funder premium? 

The premium is north of 40% according to the House Of Commons briefing paper: Social care: care home market – structure, issues, and cross-subsidisation.

The paper quotes an average premium of 43% from a LaingBuisson white paper and 41% as reported by The Competition and Markets Authority. 

I don’t know how exactly LaingBuisson’s £34,944 splits between state and self-funded residents. So we’ll assume fifty-fifty. 

The actual proportion of the self-funded care home population (in England) lies somewhere between 40% to 52%, depending on the source you look at.  

Multiplying the 40% self-funder premium by our 50% self-funded population assumption means LaingBuisson’s £34,944 care home cost should be about 20% higher than the State-funded figure. 

So we increase £34,944 by 16.67% to find our self-funded care home cost. 

£34,944 x 1.167 = £40,780, which is the self-funded average annual cost of a UK care home.

That’s 40% higher than the average state-funded UK care home cost of £29,117. 

If you choose a different figure from Paying For Care’s table then multiply by 1.167 to add the self-funder premium. 

Life expectancy in a care home

Now we multiply our £40,780 figure by the number of years we can expect to live in a care home. 

Life expectancy data comes from the Office of National Statistics (ONS) report Life expectancy in care homes, England and Wales: 2011 to 2012.3

Life expectancy for care home residents aged between 85 and 89 is:

Four years for women
Three years for men

I’ve chosen the 85 to 89 cohort because your chances of going into a care home are relatively low before you reach that age. (That’s according to the ONS report Changes in the Older Resident Care Home Population between 2001 and 2011.)

The table below details the proportion of the total population living in care homes (England and Wales) calculated by the ONS:

If you’re a man feeling a bit smug about the differential from age 85, don’t think it’s because you’re a tough guy. 

It’s most likely because a female carer has traditionally kept your sort out of care homes. Females don’t enjoy the same T.L.C., because men typically don’t last as long.  

(Or because men are too selfish – I see you at the back!)

Actually, female numbers in care homes declined 2001-2011, despite an aging population. The ONS thinks it’s because men are pulling their weight more as carers as the female/male life expectancy gap closes. 

There’s also some evidence that better health in later life – plus an increasing preference for care at home – could offset the rise in frailty that accompanies extended lifespans. 

Therefore, if you decide to tweak the life expectancy figures because you’re youthful – and so will likely live longer than previous generations – it’s reasonable to add a lower uplift than implied by your birthday. 

Care home cost inflation 

The £40,780 care home cost must also be multiplied by inflation for every year of life expectancy in care beyond the first. 

More realistically, we should multiply by an annual rate of care home price rises – which I’ll estimate at around 5%. 

My care home price inflation figure is partially derived from healthcare charity The King’s Fund. It estimated that the cost of care home places rose by 12% above inflation from 2015-16 to 2019-20.

That works out as approximately a 3% annual rate above inflation. Adding that figure to average UK consumer price inflation (CPI) of 2.5% gets us to 5.5%. 

But I round down to 5% annually in the hope that the political pressure to improve social care takes the steam out of costs eventually. Moreover, Monevator writer and finance industry insider, The Planalyst, tells me that care home inflation is around 5% annually in her experience. 

Paying For Care assumes an annual fee increase of 3%. So use that if you’re more optimistic than me. 

The cost of a care home: putting it all together

Let’s tally the bill:

The average care home cost is £34,944. 
£34,944 x 1.167 self-funder premium = £40,780
Men: multiply that number by your three year life expectancy in a care home. 
Women: multiply that number by your four year life expectancy in a care home. 
Multiply every year after the first by an additional 1.05 to factor in 5% care home cost inflation. 

By my sums:

The total average care home cost for a man is £128,558

The total average care home cost for a woman is £175,765.

That might not seem so bad, but…

It could be worse

…depressingly, I’ve uncovered reasons to think I’ve under-cooked these numbers. 

Care homes often charge extra for services such as wi-fi, outings, transport, and carer support to attend dentist, GP, or hospital appointments. 

Please read this excellent report by Citizens Advice on hidden care home charges if you ever need to choose residential care.

The new social care cap won’t ride to the rescue

If you’re living in England, you might hope the lifetime cap of £86,000 will cut your losses. 

But many of us won’t live long enough to hit the cap. 

That’s because swathes of your social care spending is officially excluded from your £86,000 total. 

A year one £40,780 care home cost looks like a huge dent in your £86,000 at first glance.

But you only move £18,717 towards the target after deductions

Most egregiously, it’s not the amount you paid for the care home place that counts. It’s the amount your local authority would have paid for that place. If it was paying for it! Which it’s not.

Calculating social care cap progress

To estimate the local authority rate, multiply £40,780 by 0.714 to give £29,117.

That’s the the state-funded price for your care home place. 

(Remember, we’re assuming the average self-funded care home cost is 40% higher than its state-funded equivalent.)

Deduct another £10,400 for Daily Living Costs (DLCs). The government has stated that you’ll be responsible for this amount per year – before and after hitting the cap. 

(We covered the ‘logic’ of that in part one of the series.)

£29,117 minus £10,400 = £18,717 progress made towards the social care cap in your first year in a care home. 

Now multiply that figure by your life expectancy and inflation (I assume the state rate and DLCs increase by 3% a year). 

The total is your contribution towards the £86,000 cap by the time your ongoing concern with this life is a coin flip:

Men’s social care contribution after three years is £57,888 – £28,000 short of the cap. 

Women’s social care contribution after four years is £78,353 – £8,000 short of the cap. 

If you do qualify for partial state funding along the way then that expenditure doesn’t count towards your cap either. 

Thus while state funding sounds like a win, it could crush your disposable income after you’ve paid your care home costs, because it delays the point at which the cap comes into play. 

I’ve modelled how a modest retirement income fares against the cold comfort of the social care funding system. Stay tuned for that in the next post in this series.

How to estimate care at home costs

You can estimate care at home costs using the UK Homecare Association’s minimum price for homecare

The Association has set the minimum rate for professional homecare at £23.20 per hour. (The living wage is £24.08 per hour.)

Multiply the hourly rate by common amounts of daily care at home.

For example:

Two hours per day: £24.08 x 2 x 7 x 52 = £17,530 annually
Four hours per day: £35,000 annually
Live-in care 24/7: £210,363 annually

Note care at home agencies often charge for extras such as unsociable hours and cancellations. (The Which website has a good piece on the hidden charges.)

I haven’t found life expectancy data that specifically covers people receiving care at home. 

You could adapt this ONS report on Disability-Free Life Expectancy in England

The crude headline is women can expect to live 18.5 years with a disability later in life, while men can expect 15 years. 

The report is nuanced however. And there’s no evidence that its definition of a disability is a good proxy for requiring care at home. 

Personally, I’d use a 3% to 5% inflation rate in the absence of specific care at home data on this point. 

Care home cost impact assessment

Pitting this cost model against my own retirement finances was eye-opening. The remorseless logic of social care funding forces you to sell off assets before you get any help. 

State intervention began within two years. But this still left me with little leftover money to top up the bare bones care package.

I’ll go into the gory details in the next post.  

And do remember the only certain thing about the costs I’ve presented is that they will be wrong

Your actual care home costs will depend on:

The care home you choose
The care you need – which can change over time
How long you need care
The actual rate of social care inflation
The generosity of State provision at the time

But most of all, I hope the number will be wrong because you and yours never need social care. 

Take it steady,

The Accumulator

Bonus appendix: social care funding – the diagram

This flowchart graphically simplifies the complexities of the social care system. I hope it helps you follow this series.

Paying For Care is a consumer-facing website funded by Just Group plc. Just Group is a financial services company focused on retirement income products such as annuities and equity release.As discussed in Parliament. Key quote from Baroness Browning: “I still find it bizarre that we have this subsidy in residential care… whereby self-funders subsidise those for whom the local authority purchases care. There is never any discussion around this. We do not talk about how fair it is. There is no discussion about the fact that individuals who find they have to self-fund are not paying just their weekly fees, but are also subsidising the person in the next room, or possibly even more than one person. I really think it is time that we exposed how the funding system for care works. It is like having a secret tax that nobody knows about. I find that quite abhorrent.”This report is based on 2011 census data. It’ll be interesting to see how it changes when the 2021 census numbers are crunched.

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How to estimate social care costs to improve your retirement plan
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