Planning for future care

With people living longer than ever, the likelihood of requiring nursing home care is growing all the time. We look at the financial provisions that should be put in place for this potential scenario.

Firstly, there is no one-size-fits-all approach to this situation, as everyone’s circumstances are different and subject to change.

But a financial plan that takes into account an individual’s assets and liabilities and gives a sense of where that will leave them at the point of retirement is a good place to start, Niall Kelly of Davy says.

“Pension provision still remains one of the most tax-efficient ways to accumulate capital for use in retirement. There is growth within the pension fund and it is tax-free. Our main conversation point doesn’t focus in on nursing home care but having the capacity to sustain income in retirement,” he says.

While there are a number of ways in which individuals can provide for later care, with assets such as the family home and a pension pot most typical, financial broker Paul Merriman says the Nursing Home Support Scheme (NHSS), also known as the Fair Deal scheme, looks after everyone regardless of their net worth.

“It does exactly what it says on the tin and seems to be very fair. Those that have assets and income will pay with a percentage of their assets and 80 per cent of their income and those with no assets will pay up to 80 per cent of their income. So for example, if you do not own your own home and have no asset with your only income being the State pension, the State will hold back 80 per cent of the pension and only pay 20 per cent to you,” Merriman says.

Succession plan

Diarmuid Corcoran of Wallstone Financial says there are two important considerations for individuals in an aging population such as Ireland’s: these are establishing an enduring power of attorney and, putting a succession plan in place to ensure assets can be passed in a tax-efficient manner to the next generation, if that is your intention.

“In the event that you or a loved one suffered from significant cognitive decline by way of accident, illness or just old age, there is the possibility that all assets (including all bank accounts) will become frozen and unusable to contribute towards the cost of your care,” Corcoran says.

“An enduring power of attorney addresses this risk by allowing a trusted family member or friend to manage your assets in a manner they see fit, in the event you became unable to and thus easing the financial burden on your family or friends of maintaining your care as you age,” he adds.

While careful succession planning is needed to minimise a potential future tax burden for your family, it is important that your desire to pass on wealth to the next generation in a tax-efficient way does not impact your ability to maximise your quality of life or standard of care while you are alive.

“Careful and prudent financial planning is needed in this regard and it is important to note that generally speaking, the earlier you decide to embark on establishing a succession plan, typically the more options you will have available to you.

“In summary, the key to a long and happy retirement is establishing a financial plan as soon as possible. No one is too young in this regard. None of us knows what the future holds, however, starting the accumulation of a nest egg for your retirement as soon as possible will allow you reap the benefits of compound interest for longer and give you more options as you near retirement,” Corcoran says.