High net worth (HNW) clients are not obvious candidates for state-funded social care.

But research by Charles Stanley has found that a third of people with investable assets or household income of at least £200,000 plan to spend their fortune to qualify for government support later in life.

Why? They do not want care costs to come out of their own pockets and to be a burden on their families.

Charles Stanley’s report also highlights that some HNW clients do not save for care later in life or discuss it with their families – although some expect their partners or children to pay for this care.

If you want any choice and a reasonable standard of care, you have to pay for it yourself.

Should advisors talk more about later life care to combat the lack of knowledge of some of their wealthier clients?

living standards

Financial advisors, even those at Charles Stanley, are surprised that some HNW clients talk about relying on state care later in life.

It is more common for wealthy clients to spend and give gifts to loved ones to reduce their inheritance tax liability rather than to avoid care home fees; This may be because later life care is something they never think about.

“If you want any choice and a good standard of care, you have to pay for it yourself,” says Peter Aylward, director of financial planning at Charles Stanley.

“The average cost of care is around £800 a week, but I have just spoken to a solicitor in Kenilworth about the cost of caring for someone with dementia being £8,043 a month.”

Other commentators point out that even if rich people want to trust the government, their chances of meeting the requirements are slim. People in England with savings, property and assets of more than £23,250 are forced to fund their own care in later life.

As later life counselors we cry out about this; But people don’t listen unless they have direct experience with it.

“The chance of having no income and having less than £23,250 capital will not happen for nine out of 10 people if they are reasonably wealthy,” says Tony Mudd, divisional director of development and technical consultancy at St James’s Place.

The biggest problem for Mudd is that relying on the state means a person has no choice about the type of care they receive, their location, or the home itself.

“Most local authorities only provide specialist care for extreme forms of dementia,” he says.

“They are ‘en masse settling’ in private care homes, but if your care is paid for by the state you will have a smaller room and shared facilities and be moved elsewhere.

“This won’t be the same as paying for your care yourself, and many of the best care homes don’t accept people who are funded anyway.”

Like Aylward, Mudd thinks the problem is that wealthy clients don’t think about care later in life.

The Chartered Insurance Institute has a long-term care exam but I don’t think it’s as comprehensive as it should be

This, he says, is because most people think of social care as an extension of the NHS.

“But this has not been the case since the inception of the NHS in 1948. Hospital care has always been separate from social care,” he explains.

Mudd thinks some wealthy clients are “sleepwalking” thinking they can maintain their lifestyle throughout later life, and are not saving for their care needs due to a lack of knowledge and awareness.

Government role

Mudd thinks the least the government should do is say that most of us are responsible for our own later-life care, as the care system is “massively underfunded because it costs more than the country can afford”. But he understands why various governments have refrained from announcing it.

Advisers need to talk to clients about their retirement planning and what ways they can pay for care

“Since the Royal Commission into Long-Term Care of Older People in 1998, no government has said to people: ‘You are responsible for your own care,’” he says.

“Successive governments have avoided doing this because it would be political suicide to tell older people who have paid taxes and National Insurance all their lives: ‘We’ll take your last penny to pay for your care.’”

Fixed increments

There is also a tendency for HNW clients to think that because they are not short on money, that money should cover everything they need.

The problem, says Carolyn Matravers, founder of Bluebell Financial Management, is that they don’t account for annual increases in the cost of care in later life.

“Stable increases in care home costs could be around 10% to 12% per year,” says Matravers.

Having no income and capital of less than £23,250 will not happen for nine out of 10 people if they are reasonably wealthy.

“Some people are already paying £85,000 a year or £1,600 a week and if that goes up at a compound rate it goes up very quickly.”

Matravers, who specialize in later life planning, has a large number of client couples under care.

“The numbers are eye-watering. “If you’re both in the same nursing home, you won’t be able to benefit from the big discounts,” he says.

When using cash flow modeling with clients, those who can afford later life care now are often surprised to realize they will find it unaffordable five years from now.

“There is a lack of understanding. People think they will stay where they are when their money runs out, but it won’t happen that way,” he says.

The care system is grossly underfunded because it is more expensive than the country can afford

Even large pensions will be affected by the costs of care if care is not provided in later life.

“An annuity for immediate needs could fill the gap,” Matravers adds.

Are you willing to listen?

Some commentators say wealthy clients avoid the need to plan for later-life care expenses with flippant comments such as “Shoot me if I get to that point” or “I’ll be dead by then.”

“When I get comments like, ‘I won’t be around then,’ I tell them my biggest client passed away two weeks after him.^This birthday,” says Matravers.

“Then they say they don’t want to live that long. However, if you receive care in a safe and secure environment where the risk of tripping and falling is eliminated, you will most likely live to be 100.”

If your care is paid for by the government, you will have a smaller room and shared facilities and will be moved to other locations.

Hayley Burns, a wealth planner at Succession Wealth, points out that the length of time people spend in hospice care varies.

Therefore, discussions need to be held about which assets will be used first and having a plan B in case the designated money runs out.

“There needs to be more discussion about later life care,” says Burns.

“Advisers need to talk to clients about their retirement planning and what avenues they can take to pay for care. There needs to be a discussion about whether to apply for an annuity and, if one partner needs care, how important it is for a partner to receive help to provide income for one partner.”

So how open are wealthy clients to discussions about their potential care needs later in life?

“I think there is a male/female divide,” says Burns. “In my experience, women are more open to discussing and talking about who will care for them later in life.”

Burns also thinks female clients are better prepared when it comes to wills and funerals.

“Men bury their heads in the sand. They say things like, ‘That’s too far.’ “I’ll worry about this when I’m 80,” he says.

People think they’ll stay where they are when their money runs out, but they won’t

Matravers observes that the trigger to seriously look at care planning for later life is often something happening to a friend or family member.

“As afterlife counselors, we are crying out about this; “But people won’t listen unless they have direct experience with it.”

Mudd emphasizes that it’s good for advisors to talk to affluent clients about saving for care, but the lack of specialized products and limited training for advisors on late-life care creates challenges.

“The Chartered Insurance Institute has a long-term care exam, but I don’t think it’s as comprehensive as it should be.”

This article appears in the November 2024 issue. Money Marketing.

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