Immediate care needs annuity

lisyloo

Sea_Shell wrote: »

What % of her assets were you thinking of using to provide the annuity.

It's just you mention still being some inheritance for benefit of family.

Surely once an annuity is bought, pays out and then finishes (on death), you don't get any money back. Are these types (immediate care) different??

I’m guessing - 50% (based on brief ball park from FA).

I agree there is no money back from the annuity but any money not spent on the annuity will be in her estate (minus any personal expenses).

If she lives a long time beneficiaries could be better off as their 50% is protected, but it’s a moot point as the inheritance is not relevant to any decisions I have to make in HER best interests.
The reason for doing it would be that she doesn’t end up in overmydeadbody grove when she can’t pay in 5 years time and we have no idea what LA or government policy will be then.
What we do know is that her needs will be high (she’s current assistance of 2 to move anywhere) and that no-one will have £500 per week spare or be able to give up work as her eldest child won’t have reached SPA.

xylophone

Of course it is not impossible that she will qualify for CHC in the future - dementia is progressive and her medical needs could increase.

lisyloo

xylophone wrote: »

Of course it is not impossible that she will qualify for CHC in the future - dementia is progressive and her medical needs could increase.

It possible but I feel unlikely.
Cognitively she’s declining, but physically/clinically she’s fine.
Yes that could change but I’ve heard there is a strong resistance to paying CHC.

Shedman

When I looked in this for my MiL I discovered that are quite a few options that can can be chosen and which can have varying impacts on the premium, such as

1) Have the annuity start immediately once set up or go for deferral period before it starts paying out e.g 1 yr or 2 yr ie doesn't start paying out for 1 or 2 years but which reduces initial premium by maybe 15-20% for 1 year deferral and 25%+ for 2 year deferral

2) Level payment that never escalates or various indexation options such as annual uplift by RPI or by a fixed escalation rate of your choosing (we went with 5% p.a fixed uplift as care home costs seem to rise more than RPI). The deferred option can also get the escalation whilst in deferral period so that when say a 2 year deferral annuity starts paying out it's at the uplifted amount.

3) Whether you want possiblity of getting some of the premium back if person dies within first 6 months of annuity start (not available on all options however and does come with impact on initial premium). If available it seems to be on a reducing scale basis along lines of 100% of premium back under 1 month, 50% after 3 months and obviously nothing after more than 6 months.

It is paid direct to a registered care home (and is switchable between homes if resident moves) and is not taxable, but if resident no longer needs care then payment continues but becomes taxable income.

Once we'd got the various quotes back I put together a spreadsheet with changeable variables to work out the impact of several of these options in order to see which looked like the best (based on our assumptions re longetivity of MiL), optimal annuity amount required based on other income, potential 'loss' at each anniversary should MiL die before breakeven point, etc. This was also a useful tool to show the rest of the family so they could get their heads around the options. If you PM me I'll be happy send you a (sanitised) version and some instructions.

In the end we went with a 2 year deferred 5% escalation option (this was for an 86 year old) as, although she probably had enough to get by without one, the additional security of ensuring that she wouldn't run out of money and have ability to also fund a more expensive home if her needs increased was thought in her best interests. It has also meant that we could put a far bigger chunk of the remaining money out on 1 and 2 year fixed rate savings rather than having to ensure it was more readily accessible.

Good luck with this. It's a difficult decision process. If you have any more questions feel free to PM me.

lisyloo

Thank you, that’s really helpful

How did you estimate longevity?

LHW99

You could try this:
http://media.nmfn.com/tnetwork/lifespan/#0

lisyloo

99 according to that

Shedman

lisyloo wrote: »

Thank you, that’s really helpful

How did you estimate longevity?

The various annuity premiums indicated around about a 6 year breakeven point (so age 92).

As you might recall from the previous thread to which Xylophone posted a linked I commented about having done some googling as to expectations of life expectancy for an 86 year woman and not surprisingly ONS site (or something similar) came up with 6 years as the median but there were other stats that indicated around about a 50% chance of her living beyond 92 and I think from memory about 25% chance of being alive at 95. And that also the length of stay in a care home is a skewed bell curve with a large percentage dying within first 2 years but then there is a long tail with some pretty long stayers.

Given that there is nothing obviously life threatening wrong with MiL (her issues are more to do with having lost sight in one eye combined with mobility issues and some short term memory issues so she lost the ability or will to live independently) and that she has improved a lot since being in the home due to eating properly and having more socialising and stimulation, and given the above stats the consensus among immediate family was that it was a good shout that she would live well into her 90's.

Unfortunately we didn't have much family history to base it on as MiLs parents were killed in car accident in their 50s and her brother died early due his drinking. However, her sister who developed MS in her 30s was still alive aged 84 (at this stage of decision process) so some indicator that there was a bit of fighting spirit in the genes. So really at the end of the day it was down to gut feeling.

However, it was felt that the downside of potentially 'losing' most of the £80k premium in worse case should she die soon was more than offset by the reassurance that funding would not be an issue no matter what.

lisyloo

Shedman wrote: »

However, it was felt that the downside of potentially 'losing' most of the £80k premium in worse case should she die soon was more than offset by the reassurance that funding would not be an issue no matter what.

Well this is the nub of it.

One thing that’s come out of this discussion for me is thinking about where other family members will be in 5 years time.

For example when the LA threatened to put my FIL in overmydeadbodygrove, my SIL said she’d give up work and I’m sure she meant it.
However FIL was mobile and SIL’s partner (66) is/was an earning an income.

In 5 years time we’d be in a position where MIL needs assistance of 2 and possibly hoisting, SIL’s partner would be 71 taking a drop in income to State pension, SIL would be below SPA and MIL would have no money.

So it’s fine for her to say “she is NOT going in overmydeadbodygrove” but actually she can’t keep a roof over their head if she gives up her job.

MIL has had one UTI in 18 months and that’s all, not even a sniffle.

I am clearly moving towards accepting the loss in return for the guarantee.

kkgree1

I have POA for my mother-in-law and we've taken out two immediate needs annuities for her. The first when she moved into residential care 4.5 years ago and a "top-up" last year when she moved into the nursing wing of the home.

There are pros and cons with them, particularly as you have to weigh up the risk of losing the lump sum after 6 months. As others have mentioned, I would use an adviser who is SOLLA registered. Our adviser was great and in both circumstances could give us a rough idea of cost before we went ahead with the assessment (from GP/care home).