Immediate needs annuity question

Shedman

fred246 wrote: »

Whoa whoa whoa. I can't believe what I am reading. Are people really using ONS data which is for average people to predict how long someone will live in a nursing home? That really would be crazy. Do annuity providers quote that data? That would be very naughty. Nursing home residents are not average.

And what pray is an average person...... . All statistics have flaws (much like your earlier quoted 26 month average stay as it needs to be clarified if that is a mean, mode or median average before it is actually of any great usefulness amongst other factors such as average age of admission, social class, area, etc much as average life expectancy varies by similar factors).

fred246

So you think that being in a home makes no difference to life expectancy? Some 85 year olds are running marathons. Most are happily at home living independently. Those in homes have obviously got problems. They are nowhere near average.

Shedman

Delving further into the 26 month average stay link the underlying document had some interesting info and addresses some of my previous concern about type of average and differences in certain factors etc. (it needs to be noted this was 2008-2010 data so quite old and picture may be somewhat different now). A couple of the pertinent paragraphs are

"In the Bupa sample, the average length of stay was 801 days, but with a considerable tail of long-stayers. Half of residents had died by 462 days. Around 27% of people lived for more than three years, with the longest stayer living for over 20 years. People had a 55% chance of living for the first year after admission, which increased to nearly 70% for the second year before falling back over subsequent years."

"Age (on admission) and sex were strong predictors of differences in length of stay between residents. After adjusting for potential circularity of cause and effect, the study found that lengths of stay are shorter for people in nursing beds rather than residential beds; for LA supported residents compared with self-funders (because it is believed that publicly-supported people are admitted to care homes at a later stage than self-funders, so have shorter lengths of stay), and for non-ambulant compared with ambulant people."

I think it is the 'fear' of the potential cost and affordability implications if ones relative becomes one of the 'considerable tail of long stayers' that concerns a lot of people in deciding how to fund the Care home costs.

As Dunstonh said earlier an Immediate needs annuity gives certainty and security. Risk losing up £40, 50, 100k out of the relatives own money or risk having to top them up out of your own money for an unknown period and that you might need to pay for your own care needs in future...it's a tricky one but I know which side of that divide I fall on. It's clearly not right for everyone but I think it's a good idea to get quotes for various options so you can at least assess it properly. That's why I was happy with the Eldercare approach to fees as the cost of getting that info could be zero (other advisors may do similar).

fred246

I reckon about 10 to 15% of people will end up financially better of by taking the annuity option. The IFA that saw me seemed embarrassed to be selling such a product. He was saying it would cost approximately 7 years of care costs. We just laughed it off as virtually useless.

Linton

fred246 wrote: »

I reckon about 10 to 15% of people will end up financially better of by taking the annuity option. The IFA that saw me seemed embarrassed to be selling such a product. He was saying it would cost approximately 7 years of care costs. We just laughed it off as virtually useless.

Perhaps only 10%-15% of people gain financially from having house insurance. That does not mean that it is virtually useless. It would be interesting to know typical immediate needs annuity costs as a function of age.

One point I would make is that an immediate needs annuity should only be considered as protection of the person concerned, not as an insurance for the beneficiaries.

Shedman

Linton wrote: »

Perhaps only 10%-15% of people gain financially from having house insurance. That does not mean that it is virtually useless. It would be interesting to know typical immediate needs annuity costs as a function of age.

One point I would make is that an immediate needs annuity should only be considered as protection of the person concerned, not as an insurance for the beneficiaries.[/QUOTE]

However, the elderly relative is often keen to ensure something is left for beneficiaries to inherit and hence both aims are legitimate to be considered if that is what the person has a desire to achieve. Surely anyway taking out an INA achieves the aim of protecting the Care user at the potential risk (on Fred's figures a huge 85-90% risk) of the beneficiaries losing out.

Also where is the evidence for this only 10-15% gaining, apart from a statement by an anymous (sic) person on the internet. Out of interest I might see if I can find some other stats on that figure as that could be informative.

(BTW we haven't yet taken out an INA, although the MiL and beneficiaries are keen, as I'm still doing some financial modelling on it so it is good to have this exchange of views and opinions as it does help to bring to light other info and stats and things to consider)

Shedman

To answer Lintons question about costs vs age I came across these figures. Clearly they are just indicative and take no account of sex (EDIT: thinking about it are they allowed take account of gender in this type of annuity quote now? If not then presumably as there are significantly more woman in care than men and they live longer the quotes will be biased towards taking account of their better longevity and hence be less favourable for men who are likely to die earlier?) and individual health assessment

Cost of £10,000 annuity at different ages
70 £140,000
75 £105,000
80 £75,000
85 £60,000


How much will an annual income of £20,000 cost to buy?

ESCALATION 0%. ESCALATION 5%
Age Residential. Nursing Residential Nursing
75 £147,000 £126,500 £182,400 £153,000
80 £130,800 £117,000 £157,200 £138,400
85 £109,200 £101,100 £126,600 £116,200
90 £86,600 £81,000 £97,000 £90,200
95 £68,200 £64,400 £74,300 £69,900
100 £58,500 £55,900 £62,700 £59,800

My MiLs quotes (including advisor fees) for 86 yo women were pretty much in line with these (premium of 5.5 x annuity for level and 6.4 x for 5% escalation).

(Apologies for lack of formatting)

LHW99

I wonder if these figures are basically for a "frail elderly" person, and probably not taking account of specific health issues (likely I suspect, as the policy cost is generally only decided after a medical check).
My MiL had a lower quote for a £15k ICN annuity due to having numerous health issues (admittedly this was 2013 so things will probably have changed).

Shedman

Interesting paper of INAs and their role in funding long term care - particularly pages 15 - 18 talking about the 'annuity puzzle' and exploring the reasonings for low uptake of INAs such as risk aversion, loss aversion, look and feel of annuities and gambling on life of relative.

http://strategicsociety.org.uk/wp-content/uploads/2013/01/Immediate-Needs-Annuities-Their-role-in-funding-care.pdf

lisyloo

Being honest with myself I think I was primarily thinking of protecting my SILs inheritance as the main advantage (hence why I would always talk through all the angles). Yes she might lose some but from her perspective having none is far worse than having less than she could have had.
MIL has been in the home funded by LA (property was disregarded until FIL died) so whether she’s private or LA the chances are that she’s going to stay in the same place (and we made sure she was somewhere that would not necessitate moving as her needs increased).

I am not keen on looking at investments. The downside inflation risk over a few years is not that big, but I will look at some 1, 2, and 3 year fixed accounts, if there are no penalties for dying.