Care Fees Annuity - Advisers Commission?

dunstonh

With regard to my original question concerning the "Advisors" remuneration you are all correct in that it is not a "commission"; its a fee.  But it's specified as a percentage of the cost of the policy, added to the policy premium, collected by the Insurer and paid back by them to the "advisor".  So a commission in all but name.

No.  It is not a commission.  Back in the commission days, the provider would pay the commission but it would not be explicitly charged against the premium.    Sometimes the commission would take many years to recover. Sometimes the providers would never recover it.  Sometimes they would not only recover it but go on to make a load of money themselves out fo it.    A fee is an explicit charge.    No more. No less.

For example, a pension costing 1% p.a.  (such a stakeholder pension) with a £10,000 contribution would see the adviser get paid around 4% commission up front.  So, that's £400.   However, £400 wasn't deducted from the pension.  The provider paid the £400 and then collected the 1% p.a. for the rest of the life of the plan.  That's £100 a year ignoring growth.   So, by year 4, they have covered the commission and after that its extra profit for them.   Whereas a fee could well be £400. However, it would be deducted from plan value bringing it to £9600.  However, as the annual cost doesnt have to cover any commission, it isn't 1% being charged but 0.35%.    So, once the breakeven point has been hit, you are not paying for it for the life of the pension through an increased annual charge.

So, in the majority of cases, a fee is better value for consumers as it gets it out of the way and you are not paying for it decades later.  

The "fee" my "advisor" is quoting works out substantially more (based upon the estimated policy cost) than the numbers indicated above for a Pensions Annuity. 

You would expect a bit more than a pension annuity but not necessarily by much.

I suspect that this would be justified by the fact that, unlike a pensions annuity, they are not able to just consult actuarial tables but have to carry out a personalised individual assessment , consult GP's, obtain medical reports etc.. 

Advisers do not carry out actuarial work.  Pension annuities also have to carry out a personalised individual assessment, consult GP's, obtain medical reports. (although the provider does the obtaining and consulting with GPs.  The adviser obtains the medical background from the client).

The issue is I have nothing to compare it to to check I'm getting value for money and was hoping someone on here may have been through the process and could advise.

Many adviser firms will taper their percentage charge as the amount involved gets larger.   Some have caps and collars (i.e. x% subject to a minimum of £x and a maximum of £y).     The ones to avoid are where the percentage is uncapped or no tapering is in place.   Theoretically, every firm should have a decency cap.   Although it appears some have a strange definition of decency.  I don't believe SJP have a decency cap (i have seen charges of over £25,000 quoted by them for routine cases where the fee elsewhere would be more like £2,500).

Malthusian

fred246 said:

I bet the government has considered forcing people to use them. If you had the capital you could tell everyone they have to purchase an annuity to avoid the government having to pay anything. Interesting wondering what would happen if they did that.

If someone has the capital to purchase an annuity it's pretty rare the government will have to pay anything. As you yourself point out, the average stay in a care home is shorter than people want to think and it's very rare for people to run out of money. So I very much doubt they will open that can of worms. As long as the money doesn't run out the Government doesn't care whether an insurer or the person themself pays.

In addition, making care annuity purchase mandatory would reduce Inheritance Tax receipts. When someone buys a care annuity the money is immediately deducted from the amount liable to Inheritance Tax. On average, people will have more left when they die if they self-insure - and therefore pay more Inheritance Tax.That's how insurance works - the insurers aren't going to pay out more than they take in.

fred246 said:

We paid for carers for years. They are very cheap in comparison. Only about £10 per hour. They were never given very long visits. Never very satisfactory but MUCH cheaper than a care home.

Bear in mind that you have to add the imputed rent of the house you live in (or actual rent) when comparing care in your own home with a care home.

Shylock

dunstonh said:

With regard to my original question concerning the "Advisors" remuneration you are all correct in that it is not a "commission"; its a fee.  But it's specified as a percentage of the cost of the policy, added to the policy premium, collected by the Insurer and paid back by them to the "advisor".  So a commission in all but name.

No.  It is not a commission.  Back in the commission days, the provider would pay the commission but it would not be explicitly charged against the premium.    Sometimes the commission would take many years to recover. Sometimes the providers would never recover it.  Sometimes they would not only recover it but go on to make a load of money themselves out fo it.    A fee is an explicit charge.    No more. No less.

For example, a pension costing 1% p.a.  (such a stakeholder pension) with a £10,000 contribution would see the adviser get paid around 4% commission up front.  So, that's £400.   However, £400 wasn't deducted from the pension.  The provider paid the £400 and then collected the 1% p.a. for the rest of the life of the plan.  That's £100 a year ignoring growth.   So, by year 4, they have covered the commission and after that its extra profit for them.   Whereas a fee could well be £400. However, it would be deducted from plan value bringing it to £9600.  However, as the annual cost doesnt have to cover any commission, it isn't 1% being charged but 0.35%.    So, once the breakeven point has been hit, you are not paying for it for the life of the pension through an increased annual charge.

So, in the majority of cases, a fee is better value for consumers as it gets it out of the way and you are not paying for it decades later.  

The "fee" my "advisor" is quoting works out substantially more (based upon the estimated policy cost) than the numbers indicated above for a Pensions Annuity. 

You would expect a bit more than a pension annuity but not necessarily by much.

I suspect that this would be justified by the fact that, unlike a pensions annuity, they are not able to just consult actuarial tables but have to carry out a personalised individual assessment , consult GP's, obtain medical reports etc.. 

Advisers do not carry out actuarial work.  Pension annuities also have to carry out a personalised individual assessment, consult GP's, obtain medical reports. (although the provider does the obtaining and consulting with GPs.  The adviser obtains the medical background from the client).

The issue is I have nothing to compare it to to check I'm getting value for money and was hoping someone on here may have been through the process and could advise.

Many adviser firms will taper their percentage charge as the amount involved gets larger.   Some have caps and collars (i.e. x% subject to a minimum of £x and a maximum of £y).     The ones to avoid are where the percentage is uncapped or no tapering is in place.   Theoretically, every firm should have a decency cap.   Although it appears some have a strange definition of decency.  I don't believe SJP have a decency cap (i have seen charges of over £25,000 quoted by them for routine cases where the fee elsewhere would be more like £2,500).

Thanks.  Really useful.  

fred246

We had an SJP drive to our house. He talked for a while. We were under the impression that everything was free unless we agreed to the annuity. That's the problem. The adviser and the company only get paid if an annuity is taken out. So the adviser can't be impartial. They can't 'advise' if they will make thousands of pounds if you agree and nothing if they 'advise' against it.

badmemory

I think some of the decrease in those going into care homes is more to do with LAs not having the funds.  It is much cheaper to have a care worker visiting the house several times a day than it is to top up someones income enough to pay for a care home.  Even if they really should be in a home.  In the case of one of my ex-neighbours actually committed would have been good.  Waiving a gun around at local kids is not a good look!

Albermarle

badmemory said:

I think some of the decrease in those going into care homes is more to do with LAs not having the funds.  It is much cheaper to have a care worker visiting the house several times a day than it is to top up someones income enough to pay for a care home.  Even if they really should be in a home.  In the case of one of my ex-neighbours actually committed would have been good.  Waiving a gun around at local kids is not a good look!

There does come a point though ( that Linton mentioned) that the home care costs start to get close to care home . Two carers coming 4 times a day , 7 days a week and an overnight carer can get expensive . Also care home costs vary a lot depending on quality and region, so not that easy to do a comparison.

fred246

Albermarle said:

There does come a point though ( that Linton mentioned) that the home care costs start to get close to care home . Two carers coming 4 times a day , 7 days a week and an overnight carer can get expensive . Also care home costs vary a lot depending on quality and region, so not that easy to do a comparison.

They don't provide carers through the night. The times of the visits they keep really short so some are only 15 minutes. And it was only £10 per hour. We ended up at 5 visits a day which was regarded as exceptional. Still nowhere near the price of a care home.

Mojisola

fred246 said:

They don't provide carers through the night. The times of the visits they keep really short so some are only 15 minutes. And it was only £10 per hour. We ended up at 5 visits a day which was regarded as exceptional. Still nowhere near the price of a care home.

But that won't be suitable for all older people who need support.

We managed for as long as possible with me and carers going in and out but he eventually needed more care - and company - than that.

He improved in health and well-being after moving into a home because he had support 24/7 and a range of people to chat to and interact with.

in_my_wellies

If I was working my mother would have to go into a care home but she sold up and came to live with me. Her IFA told us she could only pay me the cost of food and extra heating which she does. She will have to pay IHT. Mum and my brother wanted her to pay me a more realistic amount, considering how much she is saving by not being in a care home. But the IFA says this would be seen as me spending money which is not in her interest and depriving her of assets which she might need for the care home in the future. Even two years in a home at say £100,000 will still mean she pays IHT. 

fred246

That's a tricky position to be in. I would be very careful. As her care needs increase you will end up a 24 hour 365 day a week carer. You will go insane. It's intolerable. You need to look after yourself. Put her in respite care for holidays etc. Maybe day care. You can't do it all on your own.