How to effectively save for long-term care

Apr 14, 2023

You never know what might happen in the future, so it’s important to ensure you’re financially prepared for long-term care.

It’s important to ensure you’re financially prepared. That’s easier said than done though — one of the most significant challenges is figuring out how to save effectively for it.

Another is the amount you need to save, given how high the average cost for care is (£760 for a residential care home and £960 for a nursing care home a week).

To help, we’ve put this article together, which discusses some strategies for saving effectively for long-term care.


Start planning early

The earlier you start planning for long-term care, the better — the costs can be significant, so you need to give yourself the time to accumulate the saving you need to cover them.

Furthermore, starting earlier means that returns on your investments, if they went well, will be higher, allowing you to accumulate more significant savings.


Estimate your care costs

You also need a rough idea of how much long-term care will cost you. While we’ve given you some figures already, those are only averages; care costs vary widely depending on where you live, the type of care you need, and the facility you choose.

So, identify some facilities and the main risks to your health to get an idea of where you might need to go in the future. From there, you can estimate the finances you need, which will help you save more effectively.


Maximise your pension savings

Did you know that the Government provides tax relief on your pension contributions up to a certain amount? Called pension tax relief, it means that you get a certain amount of extra money in your pension from the Government for every contribution you make.

You get relief at the highest rate of income tax you pay. So, if you’re a basic rate payer, you’ll get 20% tax relief. In practice, that means that every £1 contribution you make automatically becomes £1.25 because £1.25 taxed at 20% is £1.

Higher and additional rate taxpayers get tax relief at 40% (every £1 becomes £1.66) and 45% (every £1 becomes £1.82).

However, exactly how pension tax relief works for you will depend on your the type of pension you have. Furthermore, only basic rate payers get the relief automatically, while you can only get relief on savings of £60,000 a year.



Investing your savings, while risky, can yield strong returns. But how can you do that?

Your pension provider invests your savings into a range of ventures so they can give you the amount of cash you’re due in the future. While providers tend to be careful with their investments, this means the returns can be quite low.

Another option is to open a self-invested personal pension (SIPP), which allows you to control the specific investments that make up your pension fund. You have wider options, too.

Alternatively (or additionally), you can invest in stocks and shares to grow your savings over the long term. However, this type of investment is risky, so make sure you’re comfortable with them and always speak to a financial adviser before you make a decision.


Consider downsizing

There are two sides to preparing for retirement and long-term care: one is boosting your savings with investments and tax relief; the other is simply saving more.

So, if you own a large home or have other assets you don’t need, you might want to consider downsizing to free up money for long-term care.

You could also consider an equity release to release some of the value of your home as a lump sum or in regular payments while continuing to live in your home.

However, your estate would be responsible for repaying the total balance owed if you did this, which may mean you can pass on less to your heirs.

Always speak to an adviser before you go ahead with an equity release.


Talk to a financial adviser

If you’re unsure about how to save for long-term care, always seek financial advice; an adviser can help you create a plan that meets your needs and fits your budget. They can also help you understand the risks of your plans and how to mitigate them.

Looking for someone to discuss your saving plan for long-term care? Don’t hesitate to get in touch with us

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