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Equity release could reduce shortfall in cost of care

Over-55s who need to fund from income and savings the cost of a stay in a residential care home face the prospect of a massive shortfall, research from Safe Home Income Plans (SHIP) has found.

10 December 2011

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Data analysis by the UK-based trade body for equity release reveals it will cost £51,906 to cover a typical two-year stay in a residential home, but over that period the average over-55 would receive just £27,796 in income. To cover this deficit, over-55s are likely to use their savings and investments (£10,468) but there is still a shortfall of £13,642 (26 per cent).

SHIP suggests that individuals should consider using the equity in their homes as a means of addressing the shortfall ?in funding.

Andrea Rozario, director general of SHIP, says: “There is a very real chance that over-55s might need to ?pay for some form of residential care as they get older, and as these figures show they will struggle to pay for this from their income and savings. Anyone who has assets of more than £23,500 will be expected to fund their entire care bill themselves.

“There are certain parts of England, Scotland and Wales where people do not have sufficient savings or a high enough income that they would be able to cover even the cost of basic care needs. And if we take into account further medical requirements – or indeed factor in a budget for clothing and lifestyle choices – then this situation is even worse.

“Therefore it is clear that alternative funding options need to be considered, especially if people still want to be able to choose their care home or maintain a certain standard of living. Their home is one of the largest assets at their disposal, and today’s over-55s are fortunate in that they are one of the generations who have accumulated significant housing wealth.

"By using it to fund the cost of care, they can eliminate the additional stress of financial difficulties – while retaining their home,” Rozario said.

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Vulnerable Clients Tax & Wealth structuring