Nursing home costs could leave a £200k hole in your pension

More than half of those aged 80 and over need some form of social care, research suggests. Will your pension stretch to nursing home costs?

Nurse visiting seniors sitting in the garden of a nursing home.
(Image credit: Iparraguirre Recio via Getty Images)

At some point in our lives, almost all of us will be impacted by care or nursing home costs – whether that’s the costs associated with paying for our own care or that of a loved one.

It is a bitter pill to swallow. Growing old and becoming more dependent on the help of others is challenging enough in its own right, but it is made more difficult by the extortionate price tag associated with care.

The population is ageing and the system is struggling to cope. By 2050, it is estimated that one in four people will be aged 65 and over, suggesting current challenges are only the tip of the iceberg. 

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In the lead-up to the general election, politicians have been asked how they plan to tackle the burgeoning care crisis. Both Labour and the Conservatives have voiced their commitment to the topic, but their manifestos are light on detail. 

It is the Liberal Democrats who go furthest on the topic of care, promising “free personal care”, with provision “based on need, not ability to pay”. 

In the meantime, some government help is in place already, but it is not enough for most people. The average care home costs around £4,640 per month, according to figures shared by investment platform Interactive Investor. The average nursing home is more expensive still, at £5,640 per month. 

With these figures in mind, it is unsurprising so many families report running out of money or being forced to sell their homes.

How likely am I to need care in old age?

An NHS report published in May last year reveals 26% of people aged 65 and over need social care to support them with at least one daily activity. This increases to 52% among those aged 80 and over.

Some people can be cared for in their own home, with home visits costing an average £25 per hour, according to Age UK. Others will ultimately choose a care or nursing home, which can prove significantly more expensive. 

There are currently around 372,000 care home residents in England, according to the latest data from the Office for National Statistics (ONS). This figure will likely increase over time. 

Furthermore, as demographics shift and younger taxpayers become a smaller portion of the population, there is a big question mark over how government support will be funded. Total expenditure on adult social care in 2022/2023 was £28 billion, according to the King’s Fund, an independent think tank. 

Care costs: how much extra do you need in your pension pot?

Analysis from Interactive Investor suggests someone who is currently 65 years old could need around £200,000 to fund two years in a nursing home by the time they reach their mid-80s. 

They would need to set aside around £500 per month for 20 years to afford this, assuming 5% annual investment growth, the investment platform explains. 

This comes on top of the £400,000 you already need in your pension pot before care costs, explains Alice Guy, head of pensions and savings. That’s assuming you want to enjoy a moderately comfortable retirement for 20 years. 

Guy adds: “It takes a lifetime to build up wealth, but only a few years of expensive costs to see that wealth rapidly dwindle. Paying for care home fees for two years is almost as expensive as buying a home, but it’s much less predictable and the costs come all at once.”

See our piece on how to boost your pension pot for tips on how you can build up your financial resilience before hitting retirement age.

Can I get help from the government?

Under current rules, you only receive financial assistance from the government once your assets fall below £23,250 (known as the upper capital limit). At this point, you can seek means-tested support from the local authority, but in many cases you will still end up paying a large portion of the costs.

Once your savings hit the lower capital limit (currently £14,250), you no longer need to contribute to your personal care costs from your capital. You only pay what you can afford from your income.

The good news is this is set to change from October 2025, when the upper capital limit will be raised to £100,000 and the lower capital limit to £20,000. 

From this date, the government will also introduce a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime. However, this only covers personal care costs, not residential costs. 

As such, if you move into a care or nursing home, you will still need to cover a portion of the fees yourself (such as the rent, food and utility bills). 

“Someone with modest wealth could still see their assets dwindle away, even with the new fee cap,” explains Guy. 

Will I have to sell my house to cover care home fees?

“How much you'll need to pay for care will be worked out through a financial assessment,” explains Age UK. “Whether or not your home is included in the financial assessment will depend on your circumstances.”

If you are capable of receiving care in your own home, and continue to live there, it won’t be included in the financial assessment. 

Likewise, if you need to move into a care home but share your house with a spouse (or another eligible relative) who continues to live there, it won’t be included in the assessment either. 

But if you live alone, with a non-dependent relative aged 18-60, or with a friend, your home may be included in the financial assessment if you need to move to a care home.

There is also a system in place known as a “deferred payment agreement”. Under this, the council provides financial support on the condition that you reimburse them at a later date once your property is sold (for instance as part of your estate after you have died). 

This is an emotionally difficult decision for many pensioners, who often want to leave something behind for their families once they are gone.

Katie Williams
Staff Writer

Katie Williams has a background in investment writing and is interested in everything to do with personal finance, investments, and financial news. Before joining the MoneyWeek team, Katie worked as an investment content specialist at Invesco EMEA, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. She studied English at the University of Cambridge and loves reading, writing and going to the theatre.