Mis-sold Care Annuity

lynwill53

In 2004 I was sold a care home annuity for my Mother's care, using the money from the sale of her house. She is now deceased.

I now firmly believe, and have suspected since 2006, that I was misled and blatantly lied to, by both the IFA and the person who actually sold it to me. It was a bad financial plan that equated to throwing my Mum's money down the drain.

Now that compensation seems to be available for many mis-sold financial products, I hear that mis-sold annuities will be the next thing to be targeted. What should I do? Who should I be speaking to?

dunstonh

Now that compensation seems to be available for many mis-sold financial products,

Now, as in the last 25 years.

I hear that mis-sold annuities will be the next thing to be targeted.

There has been nothing in the financial press and no compliance warnings issued about care annuities. So, where did you hear this?

What should I do? Who should I be speaking to?

Start with us. Why do you think it was mis-sold?

I will also be honest with you, I suspect it was not mis-sold and you are just peeved that your inheritance is lower (only based on the style of your post). The whole point of a care annuity is that you give up a lump sum to provide an income for life that is guaranteed to pay the care home fees irrespective of how long that may be. That is a pretty easy thing to understand. The problem comes on early death as the annuity can than appear to be poor value compared to a longer life where the annuity wipes the floor with other options. As date of death is never known and best advice is considered to the annuity in most cases, it would be interesting to know why you consider it mis-sold. I will keep an open mind in case you can show a wrong doing. However, in most of these cases, you do tend to find it is a lower inheritance that is the driver to any complaint rather than it being bad advice.

bigadaj

First thing is post some hard figures and reasons why you think it was mis-sold, you can then get people's objective opinion.

You may think it was mis sold but it is unlikely. However this doesn't mean it is not worth complaining, firstly to the provider/ IFA and then to the regulator

My wife's aunt died around five years ago, had an equity release product, and the estate managed to win money back after her death because of adverse terms, so it's worth a go.

lynwill53

Thanks for your replies. The article I found was from the Guardian, 9th July 2011, but I now realise it was not referring to Care Home Annnuities. And I do realise that my question does sound like sour grapes. So, at the risk of boring you, I will tell my tale.

May 2004, unable to cope with my mother's worsening Alzheimers, I placed her in a residential care home and set about selling our jointly owned home in order to fund it. In the summer of 2004 I consulted what I thought was an IFA at a SAGA promoted thing (seminar?) at a local hotel. I wanted to know where best to invest her half of the money to give the best interest.

He immediately said that I should not be investing it, but should buy a Care Home Annuity. He was at pains to impress on me that invested money could run out if she lived to a great age, and then I would be in trouble because there would be no help from the government if this happened. He put me in touch with an agent whose job was setting up and selling these annuities.

She also painted the bleak picture of what would happen if the money ran out, with no help forthcoming from anyone. So I agreed for her to set up the care annuity package for when the house was sold, giving an income sufficient to pay for residential care as she was, at 84, still physically active. She at no time pointed out the bleak picture this annuity would produce should she become physically immobile and need nursing care. And I never gave it a thought as she was so fit and agile for her age. Silly me.

At this time I was under extreme pressure to start paying the fees, the house sale was turning into a nightmare of collapsed sales and decreasing asking price affecting my own abilty to find myself a home. Mentally I was in a mess of depression and anxiety due to the guilt of putting her in a home, all the ongoing associated problems, and having to deal with it all alone as only child of widowed mother and no other family.

Eventually house was sold and I handed over £76,000 of my Mum's money for the annuity in autumn of 2004. All was fine until October 2005, when Mum's liveliness resulted in her falling over and breaking her hip. She was not expected to survive and, with hindsight, maybe it would have been better for her if she had not. Her Alzheimers was by then quite advanced, and this seemed to have finished her right off mentally and also physically. She was in hospital for 4 months. They were unable to get her mobile again, and she was now totally unable to do anything for herself, including eating.

I was told I must get her into nursing care, which is, of course, much more expensive than residential care. The annuity providers (who had also suspended payment while she was in hospital) told me the monthly care finance figure was fixed for her life. If more was needed that was my problem.

Luckily for me there was good advice available. Once her savings fell below £20,000 there would be financial help from my local authority to cover the shortfall and she entered a local nursing home where she survived (couldn't call it living) for almost 3 years, bedbound and in an almost vegetative state. Of course when she died, the care annuity ceased immediately and that was that.

So I began to realise in 2006 that I had been misled. Even before the money ran out there would have been financial support for her care fees had she lived to be 100 or more. I now know that the scary scenario of her outliving the money was always highly unlikely with Alzheimers disease. I feel that I made a bad decision based on bad advice, and it has preyed on my mind ever since. I have become more and more convinced that I have a case for mis-selling.

Yes, of course it's also about the money. Since the whole sorry episode in my life I have been unable to work due to agoraphobia, anxiety, panic attacks and depression. Times are tough and I am convinced that putting my Mum's money in a high interest account would have been a much better option.

jem16

lynwill53 wrote: »

Times are tough and I am convinced that putting my Mum's money in a high interest account would have been a much better option.

How much was the care per week when your Mum went into the home?

Looking back on a thread from 2008, paying around £500pw for someone with dementia was not uncommon and could be more depending on the area. So basically that's £26,000pa at least. If Mum had £76,000, her money would only have lasted about 2/3 years before she fell below the £20k mark for getting help. Even at that Mum would still have had to pay part of the costs until her savings fell further.

The Care Home Annuities are very good from a tax saving point of view as they are paid tax-free directly to the care home.

To be honest, with 4 years care, your Mum's money would have run out pretty quickly in a savings account. I would also rather have a choice for my Mum rather than a council funded home with no choice.

I can't see much wrong with the advice given at the time.

dunstonh

He immediately said that I should not be investing it, but should buy a Care Home Annuity. He was at pains to impress on me that invested money could run out if she lived to a great age, and then I would be in trouble because there would be no help from the government if this happened.

The two options are to invest or to buy a care annuity. Investments typically come out the best option on short life. Annuity typically comes out the best option on long life.

If investments are used and the money runs out then the means test will not automatically cover the cost of care that she would be receiving. That may involve a move to a lower standard care home.

She also painted the bleak picture of what would happen if the money ran out, with no help forthcoming from anyone.

it pretty much is a bleak picture. If you have experienced local authority care then you wouldnt wish that on anyone. Indeed, you mention she did end up in a local authority home so you should understand that.

So I began to realise in 2006 that I had been misled.

I still dont see where.

I feel that I made a bad decision based on bad advice, and it has preyed on my mind ever since. I have become more and more convinced that I have a case for mis-selling.

The advice seems to be fine. The money would have run out within a couple of years with the investment option. So, having the annuity income for life seems with hindsight to have been the best option. Hindsight is not available when giving advice.

I am convinced that putting my Mum's money in a high interest account would have been a much better option.

Sorry but it wouldnt have been close.

Annuity income guaranteed for life and tax free. Savings account is gone when it is gone (and it would have been gone in no time). Savings account interest is variable and taxable.

And to be blunt, £76k is not a lot of money. The yearly interest on that in recent years would be lucky to cover 3 weeks worth of care. Whatever option you could have chosen would have seen it erode away in just a couple of years.

When giving advice, the one thing you do not know is the date of death. Lets say the advice had been to use savings/investments and your mum lived for 15 years. You would now be complaining that an annuity would have been better as that would paid out more.

jamesd

What level of income did the annuity provide? How much other income did your mother have coming in? Assuming that you had instead used investments you could expect to take perhaps 6% of the £76,000 as income without reducing the capital value, say £4,560 a year gross. How does that total income compare to her initial cost of living? The shortfall, if any, would give some indication of how long the money might last if an annuity wasn't purchased. Knowing the shortfall amount we could work out how long the money might have lasted if an annuity wasn't purchased.

lynwill53

Thank you all for your input. I am grateful for your time.

It seems I may be mistaken. I will have to dig all the paperwork out of the loft and check the figures.

I did some rough calculations of what the annuity people had actually paid when I went to put it all away after her death, and that is when I first thought it had been a bad idea, as it didn't seem much.

At the time I thought there was nothing I could do. It's only lately that I am wondering if there is something.

Watson

This is an interesting discussion for me, since I am currently considering funding options for my father, who has recently moved into a care home. I consulted a local IFA who specialises in this area. He is preparing a preliminary report, but already (both in our initial meeting and the notes he sent to me) he has been at pains to emphasise both the advantages and the disadvantages of a specially-tailored annuity. He said exactly what Dunstonh wrote above: The two options are to invest or to buy a care annuity. Investments typically come out the best option on short life. Annuity typically comes out the best option on long life.

So clearly, as others have said here, the key factor is how long my father will live - and that of course is something that cannot possibly be predicted. My father has just authorised the IFA to obtain a medical report from his GP, and currently his general health is not at all bad. But who can tell the future?

Lynwill53, I'm sorry that you didn't get the same sort of advice and help that I am getting. But I'm afraid I don't think you have been deliberately misled, though possibly you were badly (or perhaps not very clearly) informed.

Incidentally, is there a way of finding out at this early stage roughly what an annuity would cost for any given sum? At the moment, I have very little idea of what sort of figures are involved.

JHW

le_loup

It is fairly easy to work out the break even point with an annuity. (The annuity premium divided by home cost + say 5% per year increase. That gives the number of years against which you must guess the life expectancy.) Clearly the annuity provider will know this calculation and the likely life of the annuitant.
What you have to consider is the certainty that an annuity provides and remember you only cover the care home fees less any pensions and attendance allowance.

Watson

Le loup, thanks for that. I just had an email from the IFA in answer to the same question: ...it is difficult to give an accurate estimation... However, our experience has shown that the cost is often around 4 times the shortfall in fees, though it could be significantly higher than this dependent upon your father's health and the underwriter's opinion.

JHW