Annuity Investment for an 85 year old - yes or no??

elpnr

An 85 year old relative has been offered (by an 'independent' financial advisor) a SunLife 5-year Certain Single Annuity. My relative is considering a large up-front investment in this product on the basis of the returns.

I'm very wary of this, so can anyone help with the following questions:

1. Is this a good idea given her age and poor health?
2. If she passes away before the 5-year term, what happens to the principal sum invested? Does it disappear or pass to a beneficiary? If so how much of the original would be returned?
3. Is it a good idea for someone of her age to tie up so much money for so long, given that she doesn't really need the return. After all, the lump sum won't be available for emergencies.

Many thanks.

jamesd

Is your relative in the UK? I'm asking because all I can find for that name is US and Canadian products. Since I don't know what the product offers because I don't know what it is, I can't really comment on whether it's a good or bad buy.

1. Poor health would be a major red flag unless the annuity pricing considers that. Or, perhaps, if this is some sort of hybrid annuity product.
2. A standard annuity would just have he money vanish but there could be guarantees, I just don't know this product.
3. Is it tied up or spent and not returned at the end? There are various hybrid products around.

A UK IFA would have to provide a document giving the reasons why the product was suitable, in comparison to the alternatives. An obvious alternative for a person with poor health would be an enhanced annuity that spends the capital to get an income. So I'd expect to see this product compared with some use of one of those.

Is it predictable that she will need residential care - living away from home - in the next few years? If so, there are specific types of annuity for that case that can be bought when that need arises, that pay out considerably more because of the quite likely low life expectancy - often a couple of years - when such care is needed, but do pay out for as long as life lasts.

Perhaps you can provide some more information about the product - like where to find a description of the UK product - and what her objectives and general financial situation are?

elpnr

Thanks James for your quick response. My Aunt is actually resident in Canada, while we are in the UK - sorry should have mentioned that! She's on her own, which puts her in a vulnerable position.

I believe the relevant SunLife brochure is sunlife.ca/files/plan/english/pdf/810-3744.pdf - I'm trying to get detailed info on the specific product.

She is getting infirm, and has a progressive illness, but is adamant that she doesn't want to move into a nursing home, which suggests live-in home care at some stage in the near future.

Does this help? Thanks again.

PS Do you have any idea of the level of fees that may be levied on such products?

sleepless_saver

Have you tried asking about this in a Canadian forum? e.g. http://www.canadianmoneyforum.com/

elpnr

No I haven't tried the Canadian forum yet. I will now though - thanks for the pointer.

jamesd

I've looked at the brochure, which covers a range of annuity products. From your description of her health it is possible that if she is using the Essential Care Annuity product it could be suitable for her to provide an income for the rest of her life.

The five year term annuity option might be suitable if she wants to convert capital to income but I have reservations if it doesn't enhance the payout based on medical conditions, because that might cause the Essential Care Annuity to be a better choice that pays out more.

2. These products provide no substantial payouts on death after the income starts. The highest available is the total of all remaining payments for the guarantee period selected at the outset, often five years in the UK.

3. It appear that this is not a hybrid product and the money isn't just tied up, it's spent at the time of purchase to buy the specified income for the specified time. After spending it the money is gone for life.

Really we'd need to know which options were being used, what the advice - if this is an advised sale not just a salesperson - says about why this is the best option for her and what pricing she's getting. And we'd also need to know the Canadian market conditions to compare that to the best pricing available there.