R05 Funding care costs: free practice questions

1. Question 1 of 4

   Why are long-term care costs likely to rise faster than general price inflation?

   Option A: Care costs are directly linked to house pricesOption B: The NHS sets care home prices for the coming year each AprilOption C: Care homes are exempt from charging VAT on their feesOption D: Most care costs are wages, so they tend to rise with earnings

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   The answer is D: Most care costs are wages, so they tend to rise with earnings

   Because most costs are wage-related, care fees tend to rise broadly in line with national average earnings rather than CPI.

   Why the other options are wrong

   A

   Care costs aren't directly linked to house prices.

   B

   The NHS doesn't set care home prices.

   C

   VAT isn't the reason care costs rise faster.

2. Question 2 of 4

   Vera has no other income and £240,000 of capital. Her care costs £60,000 a year. Ignoring investment returns and fee increases, roughly how long will her capital last?

   Option A: Six yearsOption B: Three yearsOption C: Four yearsOption D: Two years

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   The answer is C: Four years

   £240,000 ÷ £60,000 = 4 years. In practice fees are likely to rise, while investment returns may extend this slightly, which shows how quickly capital can be used up.

   Why the other options are wrong

   A

   Six years overcounts: £240,000 ÷ £60,000 = 4.

   B

   Three years undercounts: £240,000 ÷ £60,000 = 4.

   D

   Two years assumes fees of £120,000; at £60,000 a year the capital lasts four years.

3. Question 3 of 4

   Walter needs capital to meet care fees that are large relative to his assets over the next few years. What investment approach is generally appropriate for these funds?

   Option A: A single long-term property investmentOption B: Low-risk, easily realisable investments with known valuesOption C: Unquoted shares to obtain income tax reliefOption D: High-risk equities to achieve the maximum possible growth

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   The answer is B: Low-risk, easily realisable investments with known values

   The payment timetable is strict and short term, so funds for fees should be low risk and easy to realise, or have known maturity values. Equities may only suit longer timescales with favourable ratios.

   Why the other options are wrong

   A

   A single property investment is illiquid and can't be drawn on bit by bit to pay fees.

   C

   Unquoted shares are high risk and hard to sell, which is unsuitable for short-term fee funding.

   D

   High-risk equities can fall just when money is needed to pay fees on a strict timetable.

4. Question 4 of 4

   Wyn has £180,000 of capital and pension income of £15,000 a year. His care costs £57,000 a year. Ignoring investment returns and fee increases, roughly how long will his capital last?

   Option A: About 4.3 yearsOption B: About 2.4 yearsOption C: About 3.2 yearsOption D: About 12 years

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   The answer is A: About 4.3 years

   His income covers £15,000, so capital must meet the £42,000 shortfall each year: £180,000 ÷ £42,000 ≈ 4.3 years. In practice fees are likely to rise faster than general inflation.

   Why the other options are wrong

   B

   About 2.4 years overstates the drain; the shortfall is £42,000 a year, not more.

   C

   About 3.2 years ignores his £15,000 of pension income, which reduces the shortfall.

   D

   About 12 years divides capital by his income; it's the £42,000 shortfall that uses up capital.

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