Care Home Fees Immediate Needs Annuity

trevt

Any more thoughts on this subject? Thinking of going down this route with my mum and dad (88 and nearly 91) who have just gone into care. I have been told that there is an "up front" cost for just quoting - anyone able to give me a vague idea of how much - I appreciate that this sort of thing can never be a "one size fits all" matter"

jamesd

Up front cost for quoting appears to me to be more like the practice of one particular IFA than a general rule but I don't actually know.

jamesd

It is worth considering that interest rates of 12% before bad debt are available from several peer to peer lending firms, like Ablrate and MoneyThing. Perhaps 10% after bad debt. It would take many months to get many tens of thousands fully invested with prudent diversification so it can't be done immediately. Though at the moment there's quite a bit on the Ablrate secondary market at varying interest rates so it could be fairly rapid for that portion.*

Something like the Albion VCT might also be useful since after the 30% initial tax relief the effective tax exempt income is a bit over 10% a year paid in two pieces. The 30% tax relief is limited to the actual income tax due in the tax year of purchase and this limits the amount that can sensibly be bought. Somewhat ironically three of the current investments being built and just opening are care homes in SE England. The 30% tax relief has to be repaid to HMRC if the shares are sold within five years but this does not apply after death. VCTs have a normal marketing season late in the year and this year I expect this fund to be available in limited supply in November and perhaps not much longer than that, depending on demand.

While all investments have risk of loss, that can sometimes beat the certainty of loss when the alternative is buying an annuity. I'm using the three places mentioned myself.

* I sometimes sell on the Ablrate secondary market so there's a chance that I might make money from this. But I normally look to sell at relatively unattractive interest rates and not on most of the loans, so it's not likely to happen at the rates described.

Malthusian

trevt wrote: »

Any more thoughts on this subject? Thinking of going down this route with my mum and dad (88 and nearly 91) who have just gone into care. I have been told that there is an "up front" cost for just quoting - anyone able to give me a vague idea of how much - I appreciate that this sort of thing can never be a "one size fits all" matter"

Ask the IFA when you ring them up. Virtually all will have a preliminary chat with you for free. Some may do the quotes gratis as well. There is a cost to obtaining the quotes as they have to be individually underwritten which means the IFA has to spend time obtaining medical and personal details from you (and establishing how much income mum and dad require) and then chasing the providers for quotes. Some IFAs may see that as a service in itself and some may see it as part of the preliminaries, it depends on the business.

jamesd wrote:

It is worth considering that interest rates of 12% before bad debt are available from several peer to peer lending firms, like Ablrate and MoneyThing.

The fact that the OP is looking at care annuities suggests they are very averse to the risk of mum and dad running out of money and being turfed out of the care home. Investing in a nascent and untested product like P2P with the risk of severe capital losses if bad debts are higher than expected or the platform sinks - or to put it another way the risk of mum and dad having to move into a cheaper care home because P2P turned out to be the next major scandal - does not strike me as likely to meet their needs. The yield is 12% in a zero interest rate environment for a reason.

xylophone

Any more thoughts on this subject? Thinking of going down this route with my mum and dad (88 and nearly 91) who have just gone into care. I have been told that there is an "up front" cost for just quoting - anyone able to give me a vague idea of how much - I appreciate that this sort of thing can never be a "one size fits all" matter"

https://forums.moneysavingexpert.com/discussion/comment/71332382#Comment_71332382

see post 11.

jamesd

Malthusian wrote: »

The yield is 12% in a zero interest rate environment for a reason.

The reason is normally that the market rate for things like bridging loans is normally 2-3% a month even though they are secured on the property involved. There's a significant margin there to pay lenders 1% a month and competition between P2P platforms helps to keep the rates there. Others include things like a batch of HP cars secured on the cars, the HP payment stream and a replacement of any defaulting loan guarantee from the HP firm, so the cars and HP payments only matter if the HP firm first fails.

Every loan on the platforms I mentioned has security in the form of physical goods of some sort and often charges against all of the firm's assets and/or directors as well.

One thing that P2P is not is well understood by most people, who are likely to have excessive views on the level of risk involved in the FCA regulated UK P2P area.

For example, some might scare people by mentioning the risk of loss of money if a P2P platform fails, without knowing or mentioning that the FCA requires all of them to have funded run-off plans to ensure that lenders get their money back if this happens and of course checks those plans. Or they might suggest that it is a nascent and untested area that's only been around for eleven years and hope that puts people off. Or they might suggest large capital losses on loans secured on property at say the 35% loan to value that's today on offer on one of the loans on one of the platforms I mentioned, with the introducer taking a 5% first loss if the first 65% turns out not to be enough.

Looking at care annuities is not something that would be done only by those who are very risk averse, it's also something that would be done buy those who do not have the money to pay for long and who are hoping for a miracle in the form of an annuity that will pay longer than they could, for much less than it would cost. Or simply people thinking that in a zero interest rate environment it's impossible to obtain good interest rates because they just don't know about the options that are out there. So I mentioned some options that I'm using myself.

Risk aversion can also make people reluctant to go with the certainty of losing all of the purchase cost of the annuity even if life turns out not to be as long as could be hoped. That's not something that happens only sometimes, it's guaranteed 100% loss of the purchase capital every time. Vs the investment options that don't do that.

In between there can be things like an annuity purchase for part of the cost rather than all of it. Or annuity only once health gets worse so the annuity cost falls due to reduced life expectancy. Or investment-based funding and perhaps partial annuity funding only until the NHS is required to pay for some of the medical care part of the cost, instead of all of it if they happen initially not to qualify for that yet but do later in life.

I prefer people to know about the non-annuity options as well as the annuity one. That way they can make a better informed decision.

kkgree1

We took out an immediate needs annuity for my mother-in-law earlier this year.

I'd personally be concerned about advisers charging up front for obtaining quotes. Ours gave us a rough indication of cost before quote stage (based on similar cases though my mother-in-law's case was fairly unusual). The company we used were clear that there was no obligation to go ahead with any quotes but they wouldn't produce a full report (recommendations, etc) unless we decided to do so.

We were very pleased with the company we used and it has given her peace of mind that the majority of her current care costs are covered, without reducing her capital.

LHW99

I would second what kkgree1 says.
We considered this for MIL, but she unfortunately passed away during the process of obtaining POA.
The adviser gave an estimate of the likely cost range during the first free introductory discussion, which in her case (late 80's, dementia + mobility problems) was around 2 years care fees equivalent.
Had we proceeded then there would have been arrangement fees etcand a firm quote.

BlondBoy

I went through a similar process with my father. Disappointed with how it played out with one of the providers (I won't name them). My Dad's long-standing IFA would/could(?) only deal with one of the immediate care needs annuities providers and while I held POA, he was keen I maintained the working relationship with the IFA.

Paid an upfront fee to the IFA (around £1k) and got an indicative quote, which seemed quite reasonable. Then went to the next stage and the final quote came back completely differently. Break-even figure was around 6 years' worth of the contribution required to keep his care to the standard he needed. I guessed at the time he probably, realistically, only had a couple of years or so to go. So backed out.

I understand as a quasi-insurance policy, it's got to work on a 'swings and roundabouts' basis for the provider. But for them to be so conservative on his life expectancy I found highly disappointing. (As did the IFA).

He died a little over 2 years after we got the quote. His care bills increased significantly over that time, but the net effect of not continuing with the annuity was his estate was around £150k larger.

Like I say, swings and roundabouts I expect. But the quote we got from that provider was on a different playground.

jamesd

About two years is the usual life expectancy for those who are forced to go into care due to ill health.