How To Build a Self-Pay Pot for Private Healthcare in Retirement

What does self-paying for healthcare mean?

‘Pay as you go’ is often the most practical way to access private healthcare once you have retired. It means paying for your private health treatment with money you already have, perhaps in your bank or savings account, or from investments.

You don’t have to buy private health insurance, which can become expensive once you start getting older, but you’ve still got the option to pay for private treatment if or when you need it. Plus, if you don’t need treatment, or decide to use the NHS instead, you’ve still got your cash.

The pros and cons of self-paying for medical treatment in retirement

The advantages of self-paying include:

•  You’ve got the flexibility to decide when to use the NHS and when to pay for private treatment
•  You can pay for the treatment of pre-existing medical conditions that wouldn’t normally be covered by private health insurance
•  You can choose any hospital or consultant – you won’t be restricted by hospital lists
•  You only spend money if you need or want private treatment 

The disadvantages of self-paying include:

• The treatments you can access will be limited by your budget – you may not have enough set aside for more costly procedures or complex surgery
• You do not know how much treatment you are likely to need over the course of your retirement, making it difficult to accurately plan
• You could face a hefty bill that you can’t afford to pay

You can read more about the best way to pay for private healthcare in retirement in our guide.

How to fund your self-pay healthcare pot

Financial planning in retirement isn’t always easy and there can be lots of expenses to juggle. So, if the ability to pay for private healthcare in retirement is a priority, it’s important to plan and have a pot of cash that’s ring-fenced for the job. Here’s how to go about it depending on whether you have reached retirement or not.

If you are not yet retired?

If retirement is still a little way off and you think you’d like the ability to pay for private healthcare yourself, it’s worth putting in place a plan as soon as you can.

By committing to saving regularly in the years running up to your retirement, you could already have a reasonable pot by the time you stop working.

It might feel like a struggle but there are ways to make it easier. For example, once you finish paying your mortgage you can channel some of your monthly savings into your healthcare pot. Or, if you get bonuses from work, you can use those to boost your fund too.

If you are ready to retire or have retired? 

If you’ve retired, or are about to retire, you won’t have time to plan ahead and will need to work with the savings or investments you’ve already got. This could include:

• Cash savings accounts
• Investment accounts or share holdings
• Property
• Pensions

Cash savings accounts 

It’s relatively easy to earmark a specific cash account for health needs or switch money between accounts. 

But if you want to ring-fence cash for health needs only, it’s important that you have enough money in other savings accounts for all your planned and unexpected expenses. After all, you want to avoid the temptation of dipping into your pot to pay for a holiday or fix the boiler. 

Once you’re retired it’s a good idea to keep between one and three-years’ expenses in an easy to access ‘rainy day’ account – separate from any savings you’re keeping for healthcare. 

Investment accounts and shares 

You could also use money in investment funds or shareholdings to pay for private medical treatment. 

You just need to be aware that unless your investments are in an ISA (individual savings account), you could face a capital gains tax bill when you sell. 

You can take gains worth up to £3,000 each year before capital gains tax is payable. 

Property 

If you have a rental property and are prepared to sell it, you could also allocate your sale proceeds to healthcare costs. 

But this is a big decision and capital gains tax may be payable on your proceeds. 

Pensions 

You can take 25% of your personal pension as a tax-free lump sum, when you either use your fund to buy an annuity or set up an income drawdown plan. 

This is a great pension perk and using some of it to foot a future healthcare bill could be a very good use of the cash. But, it’s important to think about your wider retirement finances first and ensure you won’t leave yourself short in the future. 

You can access your pension at any time from age 55 (rising to 57 in 2028). 

It is possible to take lump sums out of your pension to pay for healthcare, either before or after taking your tax-free cash, but you are likely to face a hefty tax bill. This means it’s better to turn to other savings or investment pots first if you can. 

How much do I need in my self-pay pot?

Just how much money you need to keep in your self-pay pot will largely depend on your priorities – for example, do you want to go private whenever you need planned surgery, or is it just a case of providing a safety net if you’re in lots of pain or there’s a lengthy wait for the NHS? Your state of health will be a big consideration too. 

To help you work out how much money you might need, it’s also worth getting a feel for how much private treatment is likely to cost. 

Our research into the cost of seeing a private consultant and the cost of private medical treatment can give you an idea of what to expect. 

Typical cost of private consultations in the UK: 

• The average cost of an initial consultation with a private medical consultant is £195, and £130 for follow up appointments
• Costs vary depending on where in the UK you live. In London, initial consultations with private cardiologists typically cost £250, compared to £175 in Newcastle, Cardiff and Northern Ireland
• Psychiatrists are the most expensive specialists to consult, with initial consultations typically costing £300 

The average cost of popular health treatments in the UK: 

• Hip replacement: £14,412
• Knee replacement: £15,138
•  Lumbar decompression: £9,769
•  Abdominal hysterectomy: £8,795
•  Gall bladder removal: £6,696
•  Bunion surgery: £5,260
•  Cataract surgery: £2,943
•  Carpal tunnel release: £2,427
• Colonoscopy: £2,421
• Gastroscopy: £1,942

However, it’s important to note these are just average treatment prices. The price you’re charged can vary substantially depending on where you live – if you live in London, for example, you can expect to pay 10%-20% more. 

Where should you keep your self-pay healthcare pot?

After you have worked out how much to pay into your medical fund and how you’re going to fund it, you’ll need to think about where to keep it. 

The most straightforward option is to pay the money into an instant access savings account – ensuring that you shop around to get the best savings rate possible. A fixed-term savings account may pay a higher rate of interest but you would pay a penalty to access it before the end of the term. 

If you opt for an individual savings account (ISA), there will never be any tax to pay on your savings, no matter how much they grow. Each year you can put a maximum of £20,000 into ISAs (although the maximum you can pay into cash ISAs is scheduled to drop to £12,000 for under 65s from April 2027). 

If your money is currently invested, you can leave it where it is until you need it, if you wish. Just be mindful that you may not be able to access it quite as quickly as you could with a cash account. 

One reason why you might be tempted to leave your money invested is because it has the potential to keep on growing. The catch is that stock market growth isn’t guaranteed and the value of your pot could fall. 

Working out what’s right for you will depend on your attitude to risk. 

Using health cash plans to support self-pay in retirement

Once you’re retired, a health cash plan could be a simple way to help with certain healthcare costs. 

A cash plan won’t cover the full cost of private medical treatment, like health insurance, but it will offer a cash payout when you incur certain healthcare expenses, up to an annual limit. After receiving and paying for your treatment, all you need to do is submit a claim for the benefit to be paid. 

In addition to helping with the costs of routine expenditure like trips to the dentist or optician, you can also claim if you pay to see a private medical consultant or for nights in hospital. 

Physiotherapy and osteopathy (as well as other complementary therapies) are normally included as well, which can be helpful if you are managing a painful condition. 

Healthcare cash plans are much more affordable than private health insurance, with premiums typically ranging between £15 and £60, depending on the size and range of pay outs that are available. 

If you are likely to spend a lot of money on healthcare in retirement, they can offer excellent value for money. However, to get your money’s worth, it’s essential that you keep your receipts and submit your claims to your provider in the required time.