Care Annuity advice

rebecca1

My local hospital recommended that my father aged 97 be admitted into a Nursing home after several falls at home.
As the Nursing fees are so high, it wont be long until he small amount of savings are gone and I have to sell his flat to pay the Nursing Home fees.
He was assessed today and I was advised that he will not qualify for the Continuing Health care fund (this is difficult to get) but hopefully the Nursing Care Fund. He is already getting the higher rate Attendance allowance.

I am worried that his fees will quickly burn through his savings and equity of his flat and he will be forced to go into a different home which is not so nice. I was contemplating getting an annuity quote, I was informed that you pay out a fairly hefty lump sum initially and the care fees are then taken care of (with a built in allowance of rise in fees of 4% per year) until my father passes away.
Without wanting to sound heartless, I have to think that given his age he could pass away shortly after I have paid out a lump sum.
Or he may live another 4/5 years in which case I do not have to worry about the care home fees at all.... slight peace of mind there!It is a bit of an unsavoury gamble. I am sure the annuity company would like to make money here, has anyone had any experience of taking an annuity out they are willing to discuss here and how it went for them?
I'm sure there are quite a few pitfalls to watch out for and the thought of parting with a huge sum of of my fathers money is quite a responsibility... I'm having sleepless nights on this decision..
Any input gratefully received.
Thanks Rebecca

jamesd

Unfortunately the average life expectancy of those who need care is about two years and your father does not appear likely from your description to be above that level. While sometimes people can live far longer than that, his age and need for nursing care suggest that it is not likely.

However, health is taken into account for immediate needs annuity quotes so you might find that getting one to pay a part of the cost looks like a good risk reduction exercise for the longer life case.

However, there are other options that might be preferable.

I'm normally investing in peer to peer lending at about 12% raw interest rate on loans secured against property of various kinds. I normally suggest allowing about 2% for potential bad debt losses after the security is taken though that's fairly pessimistic. You might consider the potential income of either an outright sale or equity release on the property, assuming 12% income and accepting potential gradual capital loss as a better outcome than the annuity route that in effect "loses" the purchase capital immediately. At the very least this should greatly reduce the rate at which capital decreases compared to the annuity option.

xylophone

https://www.ftadviser.com/2015/06/11/pensions/annuities/getting-to-grips-with-immediate-needs-annuities-Kk30eC7jC9jCQTuR1qSJKI/article.html

https://forums.moneysavingexpert.com/discussion/5214897

Post 3.

FatherAbraham

jamesd wrote: »

I'm normally investing in peer to peer lending at about 12% raw interest rate on loans secured against property of various kinds. I normally suggest allowing about 2% for potential bad debt losses after the security is taken though that's fairly pessimistic. You might consider the potential income of either an outright sale or equity release on the property, assuming 12% income and accepting potential gradual capital loss as a better outcome than the annuity route that in effect "loses" the purchase capital immediately. At the very least this should greatly reduce the rate at which capital decreases compared to the annuity option.

"Sorry, Dad, I lost more of your money than I expected to by speculating on some mispriced real-estate loans, and now you have to go to the workhouse"

You couldn't make it up!

Warmest regards,
FA

jamesd

FatherAbraham wrote: »

"Sorry, Dad, I lost more of your money than I expected to by speculating on some mispriced real-estate loans, and now you have to go to the workhouse"

You couldn't make it up!

If that's what you think peer to peer lending is you need to learn more about the subject. Peer to peer in the UK is a Financial Conduct Authority regulated business and a firm simply isn't allowed to operate without FCA approval. The MSE article on it is here, though the ones it mentions aren't currently very good deals and better ones can be found in the forum discussion.

Security varies, with land and buildings being two of the more common options because their values are well known and there's usually a ready market for them. The most recent loan I advanced money on was secured by jewellery that's already in a safe controlled by the peer to peer lending firm, with the loan worth about 30% of the value of the items.

I've normally got between £100,000 and £200,000 invested in peer to peer lending and have been doing it since 2008. Obviously enough, I wouldn't still be doing it if I wasn't making money from it.

Choices here include:

1. not investing, just spending capital after sale of his home.
2. buying an annuity, with the capital lost the moment it's purchased, however long or short the time he lives.
3. investing, in a way that is likely to greatly reduce the speed at which capital is drained and might, depending on the amount invested, be enough to cover his costs for the rest of his life, however long that is, without draining capital at all. With extremely low probability of a capital loss as big as the one from buying an annuity.
4. doing some mixture of things.

At the moment we don't know enough about his current income, property value and anticipated spending to know how much of a challenge the income need is. We also don't know how expensive buying annuity income for him will be and that needs to be known as a critical part of any comparison of options. Some purchasing of annuity income could well be a useful part of the mixture, notably if sufficient income can't be generated without using up the capital spent on the purchase. Or we could find that it's sufficiently unchallenging that investment mixtures with high amounts of cash or only partial equity release could do the job, with no guaranteed loss of capital.

A key reason for mentioning P2P at an early stage is that a lot of people don't realise the sort of income levels that are available. How much P2P, if any, should be used, will depend on the rest of the circumstances, notably the difference between income and income need, and we don't know that yet. We might find that the home is sufficiently valuable that a wide range of investment mixtures can be used and P2P might not even be a useful part of those mixtures sometimes.

It's also entirely possible that he is able to make financial decisions and won't want capital spent on an annuity, preferring investments to spending capital on one. Preserving capital for inheritance is a very common preference and it's something that rebecca1 will have to consider as well, because his preference might be contrary to her own. Similarly, he might not want his home sold, preferring equity release while he's alive, even if that looks like a less good option overall.

At the moment I think from the description of his situation we have so far that covering some part of his income need with an immediate needs annuity is quite likely to be sensible, but that will depend on the balance between assets and the amount of extra income needed. We'll have to wait for more information from rebecca1 to form opinions on that.

Deneb

We bought a care fee annuity for my MIL a few years ago. She has exceeded the average length of stay in a care home and is still physically in reasonable health, having improved markedly since going into the home. Her mental faculties are now slowly diminishing however.

The annuity we purchased included a guarantee to repay a proportion of the premium in the event of death within 6 months of inception. The proportion repayable reduced over the period from the full premium in month 1 to 1/6th of the premium in month 6. Payments from the plan are guaranteed to escalate 5% per annum until death.

As with all insurance, it is to some extent a gamble, but it does provide peace of mind and an amount of financial security in care planning. We felt, and still do, that the cost of the policy was far less than we had anticipated at the outset and allowed us to allocate the balance of MIL's assets to providing her an income for everyday expenses and luxuries which would not have been affordable if we had been budgeting for the possibility that those assets would have been entirely needed to pay for care fees.

This may to some extent be due to the premium being based at least in part on the health of the insured and projected life expectancy at inception. Don't underestimate the possible health improvement of being in care though. In my MIL's case, these were quite dramatic compared to the previous few years when she deteriorated whilst living alone and refusing to leave her home or accept offers of help.

Malthusian

jamesd wrote: »

If that's what you think peer to peer lending is you need to learn more about the subject.

But not so much that FatherAbraham goes completely through the looking glass and starts suggesting that a 97 year old man for whom return of capital and not return on capital is paramount should be investing in 12% yielding loans on pawned jewellery. Or more specifically, that his daughter should do so on his behalf, who may have Power of Attorney or deputyship and would therefore be under a legal obligation to manage his finances as a prudent person of business would.

Which part has FatherAbraham got wrong? P2P is loans and they are usually (though not always) on real estate so that part is objectively true. The issue can only be with the word "mis-priced", and if these loans are sufficiently secure that a 97 year old man should have no fear in investing in them, yet they are yielding 12% per annum, then they are clearly mis-priced as the yield should be a lot lower.

OP - you will need to see an IFA (the Society of Later Life Advisers is a good start), who will take you through the options and help you work out whether the prospect of him running out of money is serious enough to merit spending a very large sum of money on an annuity. Don't lie awake worrying about it. You haven't given us the figures but the "worst case scenario" would take years to arise. You have plenty of time to make a decision.

kidmugsy

Deneb wrote: »

Don't underestimate the possible health improvement of being in care though. In my MIL's case, these were quite dramatic compared to the previous few years when she deteriorated whilst living alone and refusing to leave her home or accept offers of help.

What an excellent point. I hadn't thought of that. Is it common?

Mojisola

kidmugsy wrote: »

What an excellent point. I hadn't thought of that. Is it common?

It certainly isn't unusual.

With a warm place to live with regular food and the stimulation of company whenever you want it, many people perk up after they settle in.

Deneb

Mojisola wrote: »

It certainly isn't unusual.

With a warm place to live with regular food and the stimulation of company whenever you want it, many people perk up after they settle in.

Yes, and my MIL had for several years refused to even contemplate leaving the home she had lived in all her married life, due to the emotional attachment. But besides becoming increasingly physically frail, and having suffered several falls, she was scared to death of just about anything and everything (avid Daily Fail reader), particularly because all her friends and neighbours of a similar age had by then either moved into care or more suitable accommodation, or had passed away.

For example, she would not open any doors or windows to cool the house in the height of summer, because of the "man eating foxes", and plethora of burglars and rapists that were obviously loitering in the vicinity just waiting for her to let her guard fall.

After one particular fall and having spent several weeks in hospital, she finally admitted that she was scared to go home. We were very lucky in that, having made initial enquiries with a few local homes, a very good home which is also only a few hundred yards from us had a vacancy almost straight away.

The absence of worry and knowing that help was always on hand, together with no longer being alone and in the company of people of similar age led to an instant improvement in her emotional outlook and health in general.

She's still paranoid about the outside world (thanks DM) but no longer has to constantly worry about it, being in her own safe environment.

LHW99

Also, from experience with my MIL, although the sum involved for a care needs annuity is fairly large, at 97 it shouldn't take the whole of the funds raised from his flat.
Peace of mind in knowing that he won't have to move elsewhere if the LA wouldn't fund the current home and his savings did run out is worth a great deal.