Care Needs annuities

sav4it

I've seen the following website mentioned on this forum:
http://www.sharingpensions.co.uk/annuity_immediate_needs.htm
I've got a mishmash of questions as I am just starting to research options and want to have a plan in my mind before anything becomes a necessity and end up having to make rushed decisions:
Just how up to date are these figures?I know some websites are quite old and not updated.
1. How much would residential care roughly be for SE of England? Would the fees be all inclusive or food etc on top?
2. Same question but for full nursing care.
3. The reason I ask is because care in the home fees ( approx £13 per hour)seem much more expensive than residential figures quoted on the website.
Finally has anyone who's been at the point I am got any advice on what things to consider?

EdInvestor

This site is more up to date:
https://www.hsbcpensions.co.uk/nhfa/pages/index.asp

The importnat point is not so much the poverall cost (food is included) but how much people need to top up their incomes by.This satill seems to be about 12k, preumably because pensions and other income plus benefits and allowaqnces have risen as well.

Care in the home is inevitably more expensive than in a residential home as the majority of the cost is labour.

Very sensible of you to look into this complex area well in advance. Be sure to shop around on the care annuity, there's a big variation in deals.

You can check local care homes by facilities and cost here:

http://www.carestandards.org.uk/

EdInvestor

Read the links above. The HSBC website shows some comparative costs at different providers (there are only 3) for different ages and medical needs.

dunstonh

www.unbiased.co.uk is the UK database of IFAs. You can search by postcode. Dont filter anything else as the filter is a little on the agressive side and tends to give limited returns. Do postcode only and see which firms come out close to you.

EdInvestor

You need a specialist IFA,ordinary ones cannot handle care advice. Both "Sharing pensions" and NHFA appear to automatically get quotes from all three providers and have a lot of other info relevant to the issue.

I'm not sure how easy it is to get quotes, given the need for detailed medical info. Why not try calling both of them up and asking whether they can get quotes and what's required to do so? They may at least be able to give you a "ball park" idea of costs quite easily.

EdInvestor

sav4it wrote: »

Thank you both. I will do as you mentioned.
How popular are these products to elderly people and their families?
I had never heard of them until visiting this forum and the fact that ONLY three companies offer them worries me a little.

Most people know very little about the costs of care because, despite the large amounts of publicity about the issue, very few people actually go into care. Thus the market for care annuities is fairly small - Norwich Union also offered them but recently pulled out due to the lack of business.

Some families don't like the idea of shelling out large amounts upfront to pay for care, particularly if they expect their elderly relative to die soon - on average people survive 3 years in care homes.So they prefer to 'take a punt" on paying the fees as they go.

IMHO this is very shortsighted as many people actually find they like living in care homes, (especially if they have previously been lonely at home by themselves) and so perk up and live on and on.One suspects the figures are distorted by the much more seriously ill people who go into nursing homes.

Thus the money soon goes, (including the chunk the family had hoped to inherit assuming the oldie died quite quickly).

With the care annuity, you won't run out of money and thus it protects both the oldie's peace of mind (won't be forced out of nice care home with new friends to horrible cheap one when council has to take over funding, but is free to move to a different care home if a change is wanted) and an inheritance for the children, albeit perhaps not as much as they had hoped.

With the advisor, watch out for attempts to sell investment bonds.They have very high charges, and the "income" is paid out of your capital (that's why it is supposedly "tax free". Depletion of the fund is a big risk. )

Make sure you have totted up the full value of all pensions/income and allowances first, and have a reasonable idea of how much a suitable home is going to cost, so you have a clear idea of what the shortfall will be. If nursing care will be required, note there are changes coming in very shortly which may increase (or reduce) available money from the NHS.

dunstonh

How popular are these products to elderly people and their families?

Not very. The demand hasnt been there and one company recently withdrew from business in this area.

With the advisor, watch out for attempts to sell investment bonds.They have very high charges, and the "income" is paid out of your capital (that's why it is supposedly "tax free". Depletion of the fund is a big risk. )

I'm afraid that Ed is blinkered to investment bonds to the level of stupidity. Investment bonds can have very low charges and can have tax advantages. The income withdrawal option on the bond may well be the best option for the circumstances.

EdInvestor

dunstonh wrote: »

Not very. The demand hasnt been there and one company recently withdrew from business in this area.

I'm sure sav4it will have spotted the possible connection between the lack of business in care annuities (commission to advisor perhaps 1-2%) and the booming business in investment bonds (commission to advisor up to 7%).

:cool:

dunstonh

I'm sure sav4it will have spotted the possible connection between the lack of business in care annuities (commission to advisor perhaps 1-2%) and the booming business in investment bonds (commission to advisor up to 7%).

I am sure sav4it has spotted the number of threads in the investment section where you tell outright lies about investment bonds on both taxation and charges despite everyone else putting you right (and you ignoring it). As a 1% adviser, I would be better off taking an Immediate care annuity at 2% than an investment bond at 1%. So, your higher commission rant is completely wasted on me.

There is not sufficient information on this thread to rule out any option. To do so at this stage would be careless. Perhaps that says more about you.

A bit like last year when you told that lady in the investments section not to do the invesmtent bond because the adviser was earning about £10k from it. Despite the fact that his recommendation could save upto 200k in inheritance tax and your option wouldnt.

What are the tax advantages?

There are advantages if you fit the citeria where they are best. There are disadvantages if you dont fit the criteria.

Investment bonds can provide a regular withdrawal of 5% p.a. There is no income tax liability on the bonds as it is deemed tax paid. There would also be no reduction in age allowance (if income was taken above £20,900). There is also no capital gains tax to pay.

If the capital lump sums large enough where 5% can cover the costs, then that could be a valid option to consider. If caught early enough, investment bonds can be invaluable as they are not included in the means test for local authority care. However, once care is known to be required, it is too late to take advantage of that as it would be seen as being done to obtain benefits.

Immediate care annuities are expensive if the health isnt that poor. They may be tax free but a purchase life annuity could be a better alternative despite being partially taxed.

In reality, there are a number of options to consider with only limited information available. The better the health of the individual, the less attractive an immediate needs annuity looks. The worse the health, the better it looks.

dunstonh

If local authority care costs are not an issue now and unlikely to be in the next 12 months, then the investment bond could be the best option. However, it is important that individuals understand the powers that local authorities have to include in the means testing assessment assets that they consider to have been subject to ‘deliberate deprivation’. A definition used by Age Concern is that “deliberate deprivation occurs when a resident transfers an asset out of his or her possession in order to put him or herself in a better position to obtain assistance”. The Department of Health’s Charging for Residential Accommodation Guide (CRAG) gives the following examples of deprivation:

• a lump sum payment such as a gift or to pay off a debt;
• transferring the title deeds of a property to someone else;
• putting money into a trust that cannot be revoked;
• converting money into another form that has to be disregarded from the means test, e.g. personal possessions, investment bonds with life insurance;
• reducing capital through substantial expenditure on items such as expensive holidays or by extravagant living.

Section 21 of the Health and Social Services and Social Security Adjudications (HASSASSA) Act 1983 give the local authority powers to recover any sums which it has to pay towards an individual’s care costs from the person to whom an asset was transferred in cases where that individual has deliberately deprived him/herself of an asset. However, this power can only be used if the deliberate deprivation occurred within six months of the donor requiring funding.

So, if you invest into an investment bond where there is 12 months or more and its documented that the investment was made for investment (and income if applic) purposes then that should be sufficient to take the money outside of the means test.

paragraph 6.002B of the CRAG guidelines states that: 'Councils are advised that if an investment bond is written as one or more life insurance policies that contain cashing-in rights by way of options for total or partial surrender, then the value of those rights has to be disregarded as a capital asset in the financial assessment for residential accommodation'.

So, you can see that ruling out investment bond, like Ed has, could be extremely costly.

I see you are an IFA, Dunstonh. How would you treat someone in my situation that just wants a hypothetical ( but accurate) list of options/costs?

If you are just after hypotheticals and dont have an existing relationship with an IFA, then you should expect to pay for this sort of thing. If you are looking for which option is best and are likely to follow through and transact on that recommendation then the adviser is less likely to charge an additional amount as they would research the options available anyway. Then its just a case of what you decide is the best option going forward. I say that because quite often there is no one clear cut option. There will be pros and cons which may only kick in if an unknown event (regarding timing usually) occurs. For example, early death or very long life. So, there could be two options on the table where an informed choice is required rather than a clear cut single option.

EdInvestor

It's instuctive to look at the example here of the 87 year old woman with dementia who needs an income of 760 pounds a month (9,120 p.a).

https://www.hsbcpensions.co.uk/nhfa/pdfs/is6.pdf

To get this income (tax free to the care provider) the most expensive annuity she could buy would cost 48,161, and this represents a return of 18.9% free of tax.The cheapest is a mere 13,139.

Perhaps dunstonh could offer some comparable figures for a purchase life annuity.

Regarding the gap between the need for the money for the annuity and the sale of the property, it would seem that you might have to pay the fees over this period from capital, which if it's a bit tight, could be a problem. Something that might be dealt with by a bit of negotiation with the care home perhaps.