Mortgages in retirement & their effect on care fees
Downsizing during your retirement years is something many people consider. Moving to a smaller property can cut down on maintenance and utility costs and if your new home is cheaper than your current property, you can even raise some cash to save or spend as you like. However, if you’re relocating to a more expensive area then you may need to take out a mortgage in order to finance the move.
Taking out a mortgage is perhaps something many wouldn’t expect to be doing at the end of their working life, but if you have a healthy pension pot saved up then it can be a perfectly viable option. What can put some retired couples off taking out a joint mortgage is the worry of what might happen should one of them need residential long-term care in the future. Should one partner’s pension be required to pay the care fees, for example, then a worrying question mark could hang over how the remaining partner would continue to pay the mortgage.
Take the following example: Mr. and Mrs. Johnson take out a mortgage on a property to live closer to their daughter. Some time after moving, Mr. Johnson requires residential care, so the local authority carries out a financial assessment to determine how much of the care should be funded by Mr. Johnson and how much by the council. In this scenario, as Mrs. Johnson will continue to live in the property after Mr. Johnson moves into a residential care home, the jointly owned property is not included in the assessment. Currently, those who are assessed as having capital above £23,250, not including a jointly owned home, are expected to pay towards care costs.
Another scenario involves the ‘50% private pension and annuity disregard’. This means that if Mr. Johnson moves into a residential care home, he can choose to pass half of certain forms of his income to Mrs. Johnson as she is remaining in the jointly owned home. The types of income Mr. Johnson can pass to his wife include private, personal or occupational pensions, as well as retirement annuity. Importantly, any money passed to Mrs. Johnson would not be included in the assessment of Mr. Johnson’s finances by the local authority, which in turn will reduce the amount of fees he is required to provide towards his care.
Care fees are a complex area of financial planning, so always ensure that you speak with a financial adviser who holds the necessary additional qualification required by the Financial Conduct Authority to advise on care fees planning. As care fees specialists, please contact us to discuss your situation in confidence.
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David Finan, Managing Director