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The cost of residential care in the UK is substantial — averaging between £30,000 and £75,000 per year depending on location and level of care required. Whether the local authority contributes to that cost depends on a means test that assesses both capital assets and income.
For individuals with pension savings, the interaction between pension wealth and the care home means test is frequently misunderstood. The rules treat an uncrystallised pension fund (a pension you have not yet started to draw) very differently from pension income already in payment. Getting this wrong can mean either unnecessarily spending pension savings on care costs or — worse — making transfers that the local authority subsequently challenges as deliberate deprivation of assets.
This guide explains the rules clearly, for individuals approaching or in retirement and for UK expats who may return to the UK and need care in later life.
The Care Home Means Test — England
The care home means test in England (Scotland, Wales, and Northern Ireland have their own rules, which differ) works as follows:
Capital thresholds (2026/27):
- Above £23,250: Fully self-funding. The individual pays the full cost of their care.
- Between £14,250 and £23,250: Partial local authority contribution. For every £250 of capital between these thresholds, the individual is assumed to generate £1 per week of notional income (the "tariff income" rule). This is added to their actual income in assessing their contribution.
- Below £14,250: Maximum local authority funding. Capital below this floor is disregarded entirely.
Capital thresholds — Scotland, Wales, Northern Ireland:
Scotland and Wales have higher thresholds and different rules. As at 2026, Scotland does not charge for personal care (though accommodation costs may still apply). Wales raised its threshold significantly in 2023. Always verify the current rules for the relevant nation.
What counts as capital:
The assessment includes most assets owned by the individual: savings, investments, shares, second properties, business assets (in some cases), and personal possessions above certain values.
What is disregarded:
The primary residence is disregarded (not counted) in the first 12 weeks of care. After 12 weeks, the property generally becomes assessable. However, there are important disregards:
- If a spouse, civil partner, or dependent relative lives in the property, it is permanently disregarded
- If a carer aged 60 or over who has been providing care lives in the property, it may be disregarded
The Critical Pension Rule: Uncrystallised Funds Are Not Counted
This is the most important planning point in this entire area:
An uncrystallised pension fund — money sitting in a SIPP, personal pension, or workplace pension that you have not yet accessed — is NOT included in the capital assessment for the care home means test.
The logic is that the pension fund is not a liquid asset in your possession. You have not drawn it; it remains within a registered pension scheme. The local authority does not count it as a "capital asset" in the standard means test.
This applies to:
- SIPP funds not yet drawn
- Unaccessed workplace DC pension pots
- AVC funds not yet converted to income
- Any crystallised funds that remain within a flexi-access drawdown arrangement but have not yet been withdrawn in cash
This is an extremely valuable planning point. A couple where one partner has £800,000 in a SIPP that has never been touched may find that the SIPP is not assessable if that partner requires residential care — even though the household has very substantial pension wealth.
Important caveat — the April 2027 IHT change:
From April 2027, unspent pension funds will be brought into the estate for IHT purposes in most cases. This change does not affect the care home means test (which is a local authority assessment, not an HMRC tax assessment). The April 2027 change relates to inheritance tax only. The care means test position — that uncrystallised pension funds are not counted — is expected to remain unchanged. However, this should be monitored as policy develops.
Pension Income in the Means Test: Different Rules Apply
While pension capital is disregarded in the means test, pension income is assessed as income.
Income from the following sources is counted in the care home assessment:
- The UK State Pension
- Defined benefit (final salary or career average) pension payments
- Annuity income
- Drawdown income (withdrawals actually taken from the pension — not the fund itself, but the cash withdrawn)
- Rental income from UK or overseas properties
Income above the assessed contribution towards care costs is retained by the individual, subject to a Personal Expenses Allowance (PEA) — a minimum sum kept by the resident for personal spending (£31.80 per week in England as at 2026/27, though the exact figure is reviewed annually).
The practical implication: a care home resident with a large DB pension and the full State Pension may find that most of their income is directed towards the cost of care, with only the PEA retained. The local authority's contribution is reduced pound-for-pound by assessed income above that.
Planning consideration: For those approaching retirement who have both DB income and uncrystallised DC pension savings, the DC pension may be worth leaving uncrystallised for as long as possible — preserving it outside the means test — while drawing primarily from the DB income (which is assessed but is also guaranteed for life).
Deprivation of Assets: The Key Risk
The most important warning in this area is the deprivation of assets rule.
If a local authority believes that an individual has deliberately transferred assets (or moved money) in order to reduce their assessable capital and thereby qualify for local authority funding, the authority can treat the person as still possessing those assets. This is known as "notional capital."
The authority assesses:
- Whether the transfer has had the effect of reducing the person's resources
- Whether this was a deliberate intention — wholly or partly — to avoid care costs
If the test is satisfied, the person is treated as if they still hold the asset.
Does the pension contribution rule apply here?
This is where the planning must be careful. Moving money into a SIPP is, in most circumstances, a legitimate pension planning step. However:
- If an individual makes a large pension contribution shortly before entering care or when care needs are already anticipated, the local authority may investigate whether this was deliberate deprivation of assets
- There is no fixed time limit for "shortly before" — the authority looks at the surrounding circumstances
- If the contribution was clearly motivated by tax planning or retirement planning that predates any care assessment, it is unlikely to be challenged
- If the contribution is made at a time when the individual is already receiving a care needs assessment, it is far more likely to be treated as deprivation
Practical guidance:
Pension contributions made as part of a long-term accumulation strategy are appropriate and legitimate. Large lump-sum contributions made immediately before care costs become apparent could be scrutinised. Always take specialist legal and financial advice before making pension contributions when care costs are imminent or already anticipated.
The Position for Couples
For married couples and civil partners, the means test assesses only the individual entering care — not the joint assets of both partners. The partner remaining at home (the "non-assessed" partner) retains their share of joint assets.
However:
- Joint savings accounts are typically split 50/50 for the means test
- The family home is disregarded while the partner continues to live there (see above)
- Each partner's pension savings are assessed separately — the non-care partner's pension is not included
This means that a couple where only one partner enters care can, with appropriate advice, arrange their finances to maximise the protection available while legitimately complying with the means test rules.
Overseas Nationals and Returning Expats
Residency requirement for local authority funding:
Local authority care funding in England is available to those who are "ordinarily resident" in England (or the relevant nation). A British national who has lived overseas for many years and returns to the UK is typically ordinarily resident from the point of return — they do not need to have been resident for a qualifying period before care.
Habitual residency:
The "habitual residence" test applies in some social security contexts. For care funding, the "ordinary residence" test is more commonly used and is generally met by someone who has returned to live in the UK with the intention of remaining.
For expats returning specifically to receive care:
The position is more complex for someone who returns to the UK primarily to receive care or NHS treatment. Local authorities and NHS bodies have the right to investigate whether the return was genuinely to take up residence, or whether the individual is using the UK solely as a care destination. Genuine returnees who intend to settle — even if their return is partly motivated by care needs — are generally treated as ordinarily resident from the point of return.
Overseas pension income:
If a returning expat has overseas pension income — from a QROPS, a local employer scheme, or a foreign state pension — this income is assessed in the means test in the same way as UK pension income. It does not benefit from any disregard or exemption.
NHS Continuing Healthcare: An Alternative Route
For those with very high care needs arising from a primary health condition (not primarily a social care need), NHS Continuing Healthcare (CHC) may fund the full cost of care — irrespective of capital or income. CHC is assessed by a clinical team against a national framework and is not means-tested.
If CHC applies, neither pension capital nor pension income is relevant to the funding of care costs. This is worth knowing for individuals with complex health conditions that require clinical-level care alongside residential care.
FCA Compliance Caveat
Care home funding rules, means test thresholds, and pension legislation change regularly. The information in this guide reflects the position in England as at 2026 and is for general information only. Rules differ across Scotland, Wales, and Northern Ireland. Individual circumstances vary significantly, and the care means test is applied on a case-by-case basis. This guide does not constitute financial, legal, or social care advice. Seek specialist advice from an FCA-regulated financial adviser, a care fees specialist, and where appropriate a solicitor experienced in later-life planning before making any financial decisions related to care costs.
How Global Investments Can Help
Global Investments advises high-net-worth individuals and internationally mobile clients on retirement and later-life financial planning, including the interaction between pension wealth, estate planning, and care funding. Whether you are planning ahead for future care costs, reviewing pension drawdown in the context of the means test, or seeking advice on the IHT implications of the April 2027 pension changes, our team can connect you with regulated specialists experienced in this area.
Contact us to arrange a consultation on later-life planning and care cost strategy.
This guide is for general information only and does not constitute financial, legal or tax advice. Pension rules, tax rates and programme details change; verify current requirements with a qualified and FCA-regulated pensions adviser before acting. Pension transfers involving defined benefits over £30,000 require regulated advice.
