Category: news

Explained: The social care cap and what it means for you

Next year, Boris Johnson’s social care cap will be introduced. So, what is it and what does it mean for you?

The social care cap limits how much an individual will pay for care during their lifetime. It will start in October 2023. The cap is £86,000, but it may not be as generous as it first seems.

The cost of care and the financial decisions someone must make if they or a loved one requires care have been debated, especially as more people are requiring care later in life.

The cost of care varies hugely between locations and the type of care needed. However, according to carehome.co.uk the average cost of living in a residential care home is £704 a week, adding up to £36,608 a year. If nursing care is needed, this rises to £888 a week, or £46,176 a year.

As a result, it’s not surprising that many people are worried about how they will pay for care if they need it and the decisions they’d need to make to fund it.

While a local authority may pay for some or all of care costs, this is means-tested, and most people will need to pay for at least a portion of their care bill. It can mean some people needing to use care facilities are forced to sell their homes or deplete the assets they’d worked hard to secure.

“Daily living costs” are not covered by the care cap

The social care cap will only cover the costs of care. It will not include “daily living costs”. This means care home residents will still be liable for costs such as rent, utility bills, and catering even after they reach the social care cap threshold.

The average daily living costs of a care home resident is difficult to assess. At the moment, many care homes do not itemise bills.

The exclusion of living expenses means it’s still important for people to consider care costs beyond the £86,000 cap.

The distinction between costs has led to criticism of the cap. It’s also received criticism for other reasons, including:

  • The cap remaining the same for everyone. Individuals with total assets with a lower value could lose more of their estate, as a percentage, than wealthier individuals.
  • Not tackling the issue of what is classified as “social care” rather than “healthcare”. Dementia sufferers, for instance, will often face higher care costs because the support needed typically comes under “social care” rather than “healthcare”.

If the value of your assets exceeds £100,000, you will need to pay for the cost of care

Whether or not you have to contribute to care costs depends on the total value of your assets, this may include things like your savings, property, and investments.

Under the new rules, people with assets under £20,000 will not have to deplete their assets to pay for care. However, they may have to make contributions from their income depending on how much it is.

If the value of your assets is between £20,000 and £100,000 you may get help from your local authority to pay for care costs, this will be dependent on your income and assets.

If your assets are more than £100,000, you will need to pay for all the care costs until the value falls below this threshold.

There are different savings and asset thresholds in Scotland and Wales.

So, once you consider the value of your property and other assets, it’s likely you would need to pay for care until the cap is reached, and then continue to pay for daily living costs.

It’s important to make potential care costs part of your long-term plan

No one wants to think about needing to use care services later in life. However, making potential costs part of your long-term plan can provide you with security.

Not only does it mean you have a fund to use if it’s needed, but it can also provide you with more choice if care is required. It may mean you’re able to choose a facility that offers the services you want or a residential care home that’s closer to your family and friends.

We can help you put a financial plan in place that will help you reach your goals and provide you with security when things don’t go to plan. Please contact us to talk about care and the steps you can take to create a care fund.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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52% of savers don’t understand the effects of inflation, and millions think they’ll be better off. Here’s why it can harm your savings

Inflation has been in the news for months now, as the rate increases. While you may notice the effects inflation has on the price of goods when you visit the supermarket, it can be more difficult to understand how and why it’ll affect things like your savings.

More than half of cash savers don’t know what effect inflation will have on the value of their savings, according to a Legal & General survey. And 13% believe inflation will leave them better off.

However, the opposite is true – inflation can harm the value of your savings.

Interest rates may be rising, but in real terms, the value of your savings is likely to fall

One of the steps the Bank of England is taking to control inflation is to increase its base interest rate.

As a result, after more than a decade of only benefiting from low-interest rates, the amount you earn from your savings may be starting to gradually rise.

For this reason, some may think that inflation, through the steps taken to control it, is having a positive effect on their savings. After all, the amount being added to your account in interest has increased.

To get a true picture, you need to consider how the value of your savings has changed in real terms.

In the 12 months to April 2022, the rate of inflation was 9%. So, if the interest rate you’re earning on savings is below this, the spending power of your savings falls. This is because as the cost of goods and services increases, your savings will gradually buy less and less.

While your savings may be growing thanks to interest, in real terms, the value is probably falling.

Even with interest rates rising, it’s likely that the interest your savings are earning is far below the rate of inflation. For your savings to maintain their value, the interest rate needs to keep pace with inflation.

As a result, rising inflation could harm the value of your savings and affect long-term plans.

54% of cash savers haven’t taken any action despite inflation rising

More than half of savers haven’t taken steps to limit the effects of inflation on their savings. In fact, 54% plan to keep their money in cash for the long term.

You may think the effects are small, but they can add up. If the high inflation environment continues for the next five years, it’s estimated that inaction could cost £21 billion collectively, according to the Legal & General research.

If you had £1,000 in a cash savings account earning 0.26% each year while inflation was 7%, it’d take just 11 years for the value of your savings to half in real terms.

There are still good reasons for maintaining a cash savings account. If you’re saving for short-term goals, a cash account often makes sense. Having your emergency fund in an accessible cash account is also important.

But, if you’re saving with long-term goals and financial security in mind, investing could present an alternative option.

How could investing help your savings keep pace with inflation?

Investing your money provides an opportunity for your wealth to outpace inflation, so they are growing in real terms.

Traditionally, stock markets have delivered better long-term returns than inflation and interest rates on savings. As a result, it can mean your spending power is preserved if you’re saving for a long-term goal. If you’re saving for goals that are more than five years away, investing can make sense.

Just because investing can deliver larger returns doesn’t mean that every investment is right for you. All investments have some risk, and it’s vital that you build a portfolio that reflects your risk profile and circumstances.

It’s also important to note that investment returns cannot be guaranteed and that it’s likely you will experience short-term volatility at some point. This means that the value of your investments may fall. However, you should take a long-term view as, historically, markets have recovered, even from sharp declines like the one at the start of the Covid-19 pandemic.

If you’re among those that hold cash savings and haven’t taken any steps to limit the effects of inflation, reviewing your financial plan now can help you get the most out of your assets.

Whether investing is right for you, or another option makes more sense, we can help you review your current finances and build a plan that’ll help you reach your goals. For many, this will include investing for the long term, and we’re here to answer any questions you may have and create a balanced portfolio with your goals in mind.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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The minimum pension contribution may not be enough. Here are 3 reasons to increase your contributions

Pension auto-enrolment means that if you’re employed you’ve likely been automatically enrolled into a pension and contributions are deducted from your pay. However, the minimum contributions may not be enough to secure the retirement you want, and the sooner you identify a gap, the more options you have.

The current minimum contribution is 8% of your pensionable earnings, with 5% deducted from your salary and your employer adding the remaining 3%.

In many cases, the minimum contribution levels will not accumulate enough pension wealth to secure the lifestyle you want. It’s important to understand what income you want in retirement and the steps you can take to achieve this.

Just 27% saving for a “moderate” retirement lifestyle think they’re saving enough

The Pension and Lifetime Savings Association (PLSA) asked pension savers whether they think they’re saving enough for retirement.

Around three-quarters said they were, however, this fell significantly when they were asked about the retirement lifestyle they want to achieve.

41% of people said they wanted a “moderate” lifestyle, described as covering their basic needs and allowing them to do some of the things they would like in retirement. Just 27% believe they’re saving enough to reach this goal.

In addition, 33% said they were saving for a “comfortable” retirement that would allow them to do most of the things they would like. Only 14% of people with this goal feel they’re taking the right financial steps now.

Nigel Peaple, director of policy and advocacy at the PLSA, said: “We have long argued that current contribution levels are not likely to give people the level of income they expect or need.”

The organisation is calling on the government to gradually increase minimum contribution levels for both employers and employees.

Increasing your pension contributions now could afford you a more comfortable retirement and mean you’re financially secure in your later years. If you’re not sure how your pension contributions will add up over your working life and the lifestyle it will afford you, we can help you create an effective retirement plan that will give you confidence.

3 more reasons to increase your pension contribution

1. You’ll receive more tax relief

When you contribute to your pension, you receive tax relief. This means that some of the money you would have paid in tax is added to your retirement savings. Essentially, it gives your savings a boost and the more you contribute, the more you benefit.

Remember, if you’re a higher- or additional-rate taxpayer, you will need to complete a self-assessment tax form to claim the full tax relief you’re entitled to.

There is a limit on how much you can add to your pension while still benefiting from tax relief known as the “Annual Allowance”. For most people, this is £40,000 or 100% of their annual income, whichever is lower. If you’re a higher earner or have already taken an income from your pension, your allowance may be lower. Please contact us if you’re not sure how much your Annual Allowance is.

2. The money is usually invested

Usually, the money held in your pension is invested.

As you’ll typically be saving over decades, this provides you with an opportunity for your contributions, along with employer contributions and tax relief, to grow over the long term. It means your pension savings could grow at a faster pace and create a more comfortable retirement.

If you want to invest for the long term, doing so through a pension can be tax-efficient.

Keep in mind that your pension usually won’t be accessible until the age of 55, rising to 57 in 2028, and that investment returns cannot be guaranteed.

3. You could pay less tax through salary sacrifice

If you want to increase your pension contributions, it’s worth talking to your employer to see if they offer a salary sacrifice scheme. It could mean you have more for retirement while reducing your tax liability now.

As part of a salary sacrifice scheme, you, as the employee, would agree to reduce your earnings, while your employer would agree to pay the amount your salary has reduced by into your pension. As your income will be lower, you may be liable for less Income Tax while increasing your pension.

Again, keep in mind that you won’t be able to access your pension savings until you reach pension age.

Contact us to understand how you can get more out of your pension

If you’re not sure if you’re saving enough for retirement or want to understand how you can make your contributions add up, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

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