Most people plan carefully for the retirement they hope for, far fewer plan for the one they might get.
Long-term care is the single largest financial risk of later life, and the one families are least prepared for. The Department of Health and Social Care estimates that around one in seven people aged over 65 will face lifetime care costs of more than £100,000.
At Killik & Co, we help clients put a realistic number on what care would mean for their finances, and structure their income and investments so that, if the need arises, it can be met without dismantling a lifetime of saving.
Tax rules apply
Tax rules apply
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Cost of care
Care costs can be substantial and vary significantly depending on where you live and the level of support required. Across the UK, residential care can cost tens of thousands of pounds each year, with nursing and specialist dementia care often costing more. In areas such as London and the South East, fees are typically higher than the national average.
Self-funders pay on average around £1,300 a week for residential care and around £1,600 a week for nursing care (£68,000 and £83,000 a year respectively).
Regional variation is significant and widening. LaingBuisson's market data puts average nursing home fees in the Southeast at close to £1,580 a week compared to £1,100 in the Northeast; (a difference of around £25,000 a year for the same category of care). In central London, £1,800 a week is not unusual, and premium homes charge considerably more.
Fees have also been rising well ahead of general inflation, driven largely by rising staff costs, and this trend shows little sign of easing. LaingBuisson's Care Cost Benchmarks projected fee inflation of 7–8% for 2025/26, following reported increases of close to 20% over the preceding two years; When planning ahead, it is crucial to assume annual increases in the region of 4–5% over the longer term, with the possibility of considerably higher rises in individual years.
Long-term care funding
Social care is means-tested so understanding where you sit in that test forms the foundation of any plan.
The means test in England will look at your assessable capital, and if this is above the upper limit of £23,250, you pay the full cost of your care. Those capital limits have not moved since 2010 - 2026/27 and is the sixteenth consecutive year they have been frozen.
Scotland has more generous capital limits, though accommodation costs are still charged. Wales operates a single capital limit of £50,000 for residential care, and caps weekly charges for non-residential care. Northern Ireland broadly mirrors England’s capital limits.
Where the NHS pays, two routes which sit entirely outside the means test:
NHS Continuing Healthcare (CHC) covers the full cost of care where someone's needs are primarily health related. It is free and not means-tested, but eligibility has tightened markedly.
NHS-funded Nursing Care (FNC) is a flat weekly contribution towards the registered nursing element of a nursing home placement. It is not means-tested, and many families never claim it.
The £86,000 lifetime cap announced in 2021 was cancelled in 2024 and does not form part of the current rules. Baroness Casey's Independent Commission on Adult Social Care, which is examining longer-term reform and the shape of a National Care Service, has had its timetable brought forward and is now due to report in summer 2027.
Paying for care
For most of our clients, the question is not whether they will self-fund, but how. There are four main sources, and the right answer is usually a combination.
Income first
The full new State Pension is £241.30 a week (£12,548 a year) in 2026/27. Add private pensions, annuity income, dividends, interest and rental income, and many households can cover a meaningful share of a care bill from income alone. The planning task is to establish the shortfall, the gap between guaranteed income and the weekly fee, as this is the figure that everything else must address.Drawing on capital
Care fees are non-negotiable, recurring and open-ended, which makes them a poor match for a portfolio that is fully invested in growth assets. A portfolio funding care needs a defined cash and defensive assets buffer so that fees are never met by selling equities into a falling market. Getting that structure right can materially extend how long a portfolio lasts.An immediate needs annuity
Also known as a care fee payment plan, this converts a lump sum into a guaranteed income for life, paid directly to a registered care provider and paid free of income tax when structured that way.The property
Selling releases capital but ends any future growth and can be emotionally fraught. Letting generates income and retains the asset, but brings management, tax and other risks. A Deferred Payment Agreement allows the local authority to pay the fees and register a legal charge over the home, recovering the debt from the estate later so nobody is forced to sell during their lifetime.
Actions you can take to prepare for care costs
Most of what you can do now is preparation rather than decision-making, and it starts with knowing where you actually stand.
A good starting point is to understand your current financial position: the income you may have available if care is needed, the potential cost of care in your area, and the level of capital you may need to meet any shortfall. Once you have that number, you have a clearer picture on the options available to you.
This may involve reviewing your expected retirement spending and any plans for gifting to understand what you can comfortably afford while retaining sufficient provision for potential future care costs. For some, downsizing a property, and considering the appropriate time to do so, may also form part of the plan. Our Wealth Planners use cashflow forecasting to model different scenarios and keep these under review as your circumstances and priorities evolve.
More broadly, the principles of good financial planning remain important. This includes making appropriate use of available tax allowances across your savings and investments, retaining sufficient cash for shorter-term needs, and investing the remainder at a level of risk appropriate to your circumstances and time horizon. Rather than necessarily setting aside a separate ‘care fund’, the aim is to build a financial plan with sufficient flexibility and resilience should care become an expense later in life.
The other thing worth doing now is putting the legal foundations in place. A Lasting Power of Attorney can only be made while you still have mental capacity, and if that moment passes your family may be left applying to the Court of Protection. We recommend also reviewing your will
FAQs
What about state benefits and allowances?
It’s also worth checking one often-overlooked source of support: Attendance Allowance. Available to anyone over State Pension age who needs help with personal care, it is not means-tested, so income and savings are irrelevant. In 2026/27, it is worth £76.70 a week at the lower rate or £114.60 at the higher rate. It is tax-free, and there are no restrictions on how the money is spent.
There are also two smaller allowances that may be relevant in certain circumstances. Clients who are registered blind or severely sight impaired can claim Blind Person’s Allowance, which increases their tax-free Personal Allowance by £3,250 in 2026/27. If they cannot use the full allowance themselves, it can be transferred to a spouse or civil partner. And where a family member provides at least 35 hours of care a week and meets the earnings conditions, Carer’s Allowance may be available. This is paid to the carer rather than the person receiving care.
None of these benefits requires a means-tested financial assessment, so it is worth checking eligibility. Between them, they can provide several thousand pounds of additional support each year.
What’s the difference between residential care and nursing care
Residential care provides support with day-to-day activities such as washing, dressing, meals and taking medication. Nursing care provides this support alongside ongoing medical care from qualified nurses. The right option will depend on an individual’s health, their care needs and level of independence.
How can pensions be used to fund long-term care?
With a defined contribution pension, flexible drawdown may allow you to adjust the income you take as your care costs change. However, taking larger withdrawals can have tax implications and affect how long your pension lasts, so it is important to speak to a professional about your options.
Will the council force me to sell my home if my partner still lives there?
No, if your spouse, partner or relative who is over 60 or disabled continues to live in your property, the house is disregarded from the means test.
Can I give away my home or savings to avoid care fees?
Giving away your home, savings or other assets specifically to reduce the amount you may need to pay towards care could be treated as a deliberate deprivation of assets.
A local authority can look back indefinitely if they suspect intentional gifting or asset disposal has taken place.
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Sources
DHSC (2022) Your Questions Answered – Social Care Reform. Available at: https://engage.dhsc.gov.uk/social-care-reform/your-questions-answered/ (Accessed: 24 September 2026).
LaingBuisson, Care Cost Benchmarks toolkit, 13th edition (2024/25 data), for the 7–8% projected 2025/26 fee inflation figure.
LaingBuisson news release, "Older people forced to pay nearly 20% more for their care, as fees skyrocket over the last two years" (2024), for the ~20% two-year increase figure.
LaingBuisson, Care Homes for Older People UK Market Report, 36th edition (2025/26), for the broader market data underpinning the rest of the paragraph.
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