Guaranteed Income Funds

andybodoyd

Hi, does anyone have any information about the above. We have been advised to group my mum's various investments and bank accounts into one pot as she is very likely due to failing health to require nursing/resedential home care in the very near future. This would hopefully provide enough money on a monthy basis to pay for all her care. I am quessing that nursing home fees would be around £500 a week although I presume that would depend on her ongoing care requirements. She receives around £900 a month in pensions (state and my late dad's occupational pension) which would have to be used to pay for some of her care and in total has approx £240,000 to invest in the fund at present and then if she does require long term care she would have to sell her house which is worth approx £100,000. We were told that the actual lump sum invested could fall in value dependant on its performance but obviously the income would be protected from any reduction. Having not heard of these and having very little financial knowledge I wondered if anyone could give me any further information and whether it would generate the approx £13,000 a year required to meet her care needs. Any advice gratefully received.Thanks

dunstonh

We were told that the actual lump sum invested could fall in value dependant on its performance but obviously the income would be protected from any reduction. Having not heard of these and having very little financial knowledge I wondered if anyone could give me any further information and whether it would generate the approx £13,000 a year required to meet her care needs. Any advice gratefully received.Thanks

The typical products used here are investment bonds or unit trusts. Either can pay a fixed regular withdrawal or natural income. Fixed regular is the norm when you know what is needed and its more consistent. Obviously the risk is that if you draw more than it makes then it drops in value. They do typically zig zag in value but the degree of which will depend on the investments used. If its an IFA giving advice they will recommend the funds. If its a tied sales rep then although you think they are picking them they are actually documenting it as your choice (plus sales reps are expensive and dont have the product range).

£240k @ 5% net = £12,000 a year. 5% is a fairly safe figure to use as it has been historically achievable. £13k needs more than 5% and residential car tends to go up each year by more than inflation so the investment option is likely to see capital erosion. Maybe not much to being with but with increasing amounts needed to withdraw it will happen.

Other options are cash savings but they are guaranteed to erode quicker. Plus, it could hit your mum's age allowance creating nearly £1000 a year tax liability. There are immediate needs annuities which are guaranteed to meet the income but will see the capital eroded. However, the income is guaranteed for life (even if there is technically no capital left). These are medically underwritten and paid gross with no tax liability but like all options, you are effectively kissing good bye to the capital (either more or less straight away or in the long term)

andybodoyd

Thanks for that, I have been doing a little reading round the subject and read about care fees payment plans which appear to do a similar thing but obviously she would lose the money invested when she dies.I wondered if that may be a better option???.My mum is only 75 but is in poor health. With her being only 75 I would presume the amount required to put in would be pretty large but at least the payments would be guaranteed.All abit confusing!

dunstonh

and read about care fees payment plans which appear to do a similar thing but obviously she would lose the money invested when she dies.I wondered if that may be a better option???.

They are immediate care annuities. They have a few names.

They have the advantage of guaranteeing that the housing fees will be paid for life. They also usually have the highest income potential for that purpose. However, you are almost certainly kissing goodbye to any capital as only any residual is paid out on death (i.e. if purchase price was £240k but £200k was paid out then only £40k would be returned on death and that assumes you pick that option. By default they do not return any capital).

If health is quite poor then the investment option can look more favourable as the capital preservation is likely to be better in the short term.

The problem is that the only way to tell which option is best is know the date of death. That isnt possible so any decision you make is going to be one made on assumptions and guesses. Some you may get right, some you may get wrong. Only time will tell.