Over recent years, the UK care sector has faced sustained and intensifying financial pressure.
Care fees have risen at a pace well ahead of broader inflation, creating a growing challenge for individuals and families planning for later life care. These trends underline the importance of forward-looking financial planning and carefully structured investment strategies, particularly where care costs may need to be met over long periods.
Headline inflation in the UK has eased from the peaks seen in recent years, offering some relief from the sharp increases in everyday living costs experienced by households. While this has helped stabilise spending on goods and services such as food, energy and transport, the same improvement has not been reflected in care costs. For those who fund care and support, either now or in the future, the financial pressures can feel overwhelming.
Care costs continue to rise at a materially faster pace than headline inflation. This divergence reflects the fundamental drivers of care provision. Unlike most household expenditure, care is highly labour-intensive. As a result, costs are shaped far more by wage growth than by movements in the Consumer Prices Index (CPI), which is a measure of inflation. Being aware of this distinction can support more informed planning for later life care.
Why care costs behave differently
CPI measures changes in the price of a broad basket of goods and services and remains a useful indicator of overall cost of living pressures. However, it does not fully capture the dynamics of labour-intensive services such as care.
Statutory wage increases tend to affect pay structures across the workforce
A more relevant benchmark for understanding care-cost inflation is the Annual Survey of Hours and Earnings (ASHE) published by the Office of National Statistics, particularly the ASHE 6135, which tracks wage growth for care workers across the UK. This index is updated regularly and now known by its official name 'SOC20 6135 and 6136'. Staffing costs typically account for the largest proportion of a care provider’s expenditure. As a result, changes in ASHE 6135 tend to feed directly into higher hourly care rates and increased overall care fees.
CPI vs ASHE 6135: a widening gap
Over time, even modest differences between CPI and wage-led inflation can compound into significant cost increases.
A care package that rises broadly in line with CPI may appear manageable in the short term. However, where costs increase more in line with ASHE 6135, the long-term outcome can be materially different. Over ten or twenty years, the cumulative effect of higher wage growth can result in care costs that are substantially higher than initially anticipated.
In recent years, ASHE 6135 has consistently outpaced CPI. This growing gap highlights the importance of being aware and planning for future care expenditure, as it may continue to outpace headline inflation. It also reinforces the value of advice that remains flexible and adaptive as care needs, costs and wider economic conditions change.
The impact of wage policy and workforce pressures
Looking ahead, increases in the National Minimum Wage and National Living Wage, due to take effect from April 2026, are likely to add further upward pressure to care and support costs. Given the labour-intensive nature of care provision, statutory wage increases tend to affect not only entry-level roles but pay structures across the workforce, as providers seek to retain experienced staff and remain competitive.
At the same time, ongoing shortages of care staff across the UK continue to drive costs higher. Demand for care is rising as the population ages, while recruitment and retention challenges persist. Providers are increasingly required to offer higher pay, enhanced benefits and greater flexibility, particularly for specialist or higher-dependency roles. In many cases, this leads to greater reliance on agency staff or overtime, both of which carry higher costs that are ultimately reflected in higher fees.
For those funding care, the key challenge is often not short-term affordability, but long-term sustainability.
Importantly, these pressures are structural rather than temporary. Each increase creates a new baseline from which future rises build, reinforcing the long-term upward trajectory of care and support costs.
Why this matters for long-term planning
For those funding care, the key challenge is often not short-term affordability, but long-term sustainability.
Underestimating care-cost inflation exposes individuals to two principal risks. The first is longevity risk: the possibility that assets will need to fund care for longer than expected. The second is the erosion of purchasing power, where capital that appears sufficient today may become inadequate as costs rise faster than anticipated.
Assuming CPI-level increases for costs that are fundamentally wage-driven can result in funding shortfalls emerging later in life, precisely when financial flexibility may be more limited. At that point, difficult decisions may need to be made, potentially reducing choice or quality of care. Our role is to provide our clients with as much information in advance so they can make informed decisions about their financial choices.
Cash and investment: balancing certainty and resilience
Cash plays an important role in later life planning, providing liquidity and certainty as care costs arise. However, an overreliance on cash carries longer-term risks when expenditure is rising faster than inflation. Even in periods of higher interest rates, cash typically struggles to keep pace with wage-led inflation, particularly when looking at the after-tax return, potentially leading to a gradual erosion of real value over time.
Overreliance on cash carries longer-term risks when expenditure is rising faster than inflation.
Carefully constructed investment portfolios can help address this challenge. The objective is not to take unnecessary risk, but to seek returns that support sustainable withdrawals and help preserve purchasing power. Diversified, multi-asset portfolios can provide a balance of growth, income and resilience, supporting long-term care funding while maintaining access to capital.
Planning ahead with confidence
At JM Finn, we support families with thoughtful, long-term financial planning in the face of rising care costs. A key part of our approach is close collaboration and integration between our wealth planners and investment managers.
Through detailed cashflow modelling and scenario analysis, we help clients understand how long assets may last, assess the sustainability of expenditure and stress test plans against higher-than-expected costs or longer life expectancy. These insights, combined with in-depth conversations about individual priorities and ambitions, inform how assets are structured to navigate both planned milestones and unexpected life events.
For clients whose affairs are managed under a lasting power of attorney or deputyship, this structured analysis provides a clear framework for demonstrating that decisions are prudent, proportionate and made in the individual’s best interests.
Taking a proactive approach to later life planning allows individuals and families to retain choice, flexibility and control for as long as possible. It’s not just about investments and financial planning, it takes a holistic approach to ensure you are prepared for life’s challenges. JM Finn works closely with a trusted network of legal and accountancy professionals across the UK, ensuring specialist advice is available where required.
JM Finn’s Wealth Planning team can help private clients to plan long-term care funding, including the use of cashflow modelling tools to stress test different scenarios. If you would like to understand how the team could help you, please speak to your investment manager to arrange a meeting.
