Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

The UK’s population is ageing. Estimates from the International Longevity Centre (ILC) suggest the number of people aged 65 and over in the UK is set to increase from 11.2m today to 17.2m by 2040.

With more of us now potentially living to 90 or even 100-years-old, that’s a good deal longer than the traditional three score years and ten we could ratchet up. Good news if those extra years are illness-free, but a very different story if we are one of the estimated three in four people who will require some form of later life care.

As the ILC says, as we live longer lives, more of us will spend time both caring and being cared for. But as it also very plainly states “our care systems are ill equipped to deal with an ageing society”.

And neither are we as individuals. Research from Fidelity International into people’s plans to pay for long-term care shows just how woefully underprepared most of us are. As many as 69% of over-55s admitted they weren’t sure what their care needs might be.1 Yet, the longer we live, the greater the chances are that we will eventually need some sort of care.

None of us know our own odds and even fewer of us are prepared for the costs. Being armed with the statistics though will leave us all better-prepared for the costs.

By the time we need it, it’s far too late to start pondering how we’ll pay. That needs to be taken care of years, if not decades, before. Having a plan in place to fund potential long-term care is a fundamental part of retirement planning. Yet too few of us do have any plans in place. Only 27% have given any thought to any potential long-term care needs and just 5% have made a specific plan, the research found. A further 52% of over-55s haven’t given any thought at all to how they will meet the costs.2

And it seems, we are just as much in the dark on the scale of the costs themselves. The research found people expect care to cost an average of £78,750, with estimates ranging from zero (with local authorities covering the bills) to more than £200,000.  Government figures suggest that one in seven people is expected to face care costs of more than £100,000 and one in 10 over £120,000.

So how should you develop a potential care costs plan? The cost calculation for long-term care is uncertain but we can apply a broad rule of thumb. Assuming that the average length of time that someone needs either residential or live-in care is around 30 months3, we can see that, at an average cost of £750 a week, they would need around £99,500 in total.

So, assuming you can generate returns of 4% a year, you need to put away £270 a month for 20 years, or £670 a month over 10 years. If you have a lump sum to invest, assuming the same rate of return, you would need to leave £44,800 invested for 20 years or £66,750 invested for 10 years, to accumulate the same sort of sum.

Regular contribution investment required to generate £99,500 (Rounded to nearest £5. Compounded monthly)
5 year term: £1,500 pm
10 year term: £670 pm
15 year term: £400 pm
20 year term: £270 pm
Lump sum investment required to generate £99,500 (Rounded to nearest £50)
5 year term: £81,500
10 year term: £66,750
15 year term: £54,700
20 year term: £44,800

Source: Fidelity International, April 2024 

Of those who have considered how they’ll fund it, 47% said they’d use their savings as the primary means of paying for long-term care, 39% said they’d use pension income, 28% said they would sell their house and 24% would look to take income from their savings or pension. Some 15% said they expect the state to pay.4

You could rely on your pension for long-term care needs, but this has implications for passing on wealth to loved ones. Depending on the type of pension you have, any unspent money in your pension pot on your death may be able to be passed to beneficiaries free of inheritance tax. If so, using it to fund care may leave little, if anything, to pass on.

It’s similar with selling your home to pay for care. Downsizing is an option, but is something better done sooner rather than later. As well as releasing cash for care, you can release money to pass on to loved ones now and reduce future inheritance tax liabilities.

Maxing out your pension contributions with a view to taking a lump sum out later for care costs is an option. However, you should be careful to segregate the money you set aside for care.

So, what are your plans? Navigating the finances of long-term care is daunting, but it’s far better to over-prepare than leave everything to chance.


1,2,4 Fidelity International, February 2023
Independent Age, April 2024

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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