Mum needs help. Is annuity best option?

Superdude0499

Hello. Essentially my mum is awful when it comes to money. It just burns holes in her pockets.
She is widowed and 70 years old.
She was left a decent inheritance from a close friend of around 200K. All gone in space of two years. Overly generous with gifts and just wasteful. Never wants to talk about money matters. Very stubborn.

So, she now has very little income other than state pension and small provision left by my stepfather (additional part of his pension when he died 3 years ago). All in all she gets about £300/week to live on. Enough, you might think, but she has 4 dogs and a large council tax bill.
Fortunately she lives in an expensive area and her house is worth circa £800k. I'm going to try to talk her into downsizing to release some money before she takes it upon herself to enter into some hairbrained equity release scheme which happens to have the prettiest website.

However, the last thing she needs is another big lump of cash (hopefully downsizing to an area closer to us and a bit smaller would release around £200k). The best thing (in my opinion) is to use this money to secure some kind of guaranteed income for the rest of her life.

I know purchasing annuities is usually done from a pension pot, but can she achieve the same level of product from using cash? Is an annuity the best option for a fixed income? Heavy smoker (won't quit), so perhaps she could get enhanced terms? Perhaps a decent home reversion policy? Are these things best accessed by an IFA?

TIA

Marcon

Superdude0499 said:

Hello. Essentially my mum is awful when it comes to money. It just burns holes in her pockets.
She is widowed and 70 years old.
She was left a decent inheritance from a close friend of around 200K. All gone in space of two years. Overly generous with gifts and just wasteful. Never wants to talk about money matters. Very stubborn.

So, she now has very little income other than state pension and small provision left by my stepfather (additional part of his pension when he died 3 years ago). All in all she gets about £300/week to live on. Enough, you might think, but she has 4 dogs and a large council tax bill.
Fortunately she lives in an expensive area and her house is worth circa £800k. I'm going to try to talk her into downsizing to release some money before she takes it upon herself to enter into some hairbrained equity release scheme which happens to have the prettiest website.

However, the last thing she needs is another big lump of cash (hopefully downsizing to an area closer to us and a bit smaller would release around £200k). The best thing (in my opinion) is to use this money to secure some kind of guaranteed income for the rest of her life.

I know purchasing annuities is usually done from a pension pot, but can she achieve the same level of product from using cash? Is an annuity the best option for a fixed income? Heavy smoker (won't quit), so perhaps she could get enhanced terms? Perhaps a decent home reversion policy? Are these things best accessed by an IFA?

TIA

Purchasing an annuity with your own funds gets different tax treatment - ie lower tax, because part of each payment is treated as a return of capital and therefore isn't subject to tax.

It doesn't have to be a fixed income ('level annuity') - she could buy one which increases at either a fixed %age or in line with inflation. Cost will depend on the terms she chooses.

Certainly worth checking out the better terms for a heavy smoker - and yes, an IFA could very probably get better terms.

dunstonh

I know purchasing annuities is usually done from a pension pot, but can she achieve the same level of product from using cash? 

Yes.  There are versions for money outside of a pension.

Is an annuity the best option for a fixed income?

Probably.

 Are these things best accessed by an IFA?

In all but the smallest values, yes.  Going direct sees the providers or the online intermediary take a commission that is often greater than the IFA fee.   So, an uncapped commission vs a capped or tapered fee means that small values are better direct but larger values better via IFA.

Superdude0499

Thanks guys.
Fixed income was probably the wrong term to use. Regular income is more apt. Whether she would take increasing or fixed is up to her. At 70 my guess is she would prefer front loading with diminishing spending power (i.e. fixed). I assume spending in region of 100k would fall into 'larger value' category?

She will take some convincing to downsize and will probably prefer some form of equity release to stay where she is.

Sitting down with her this weekend. She has an aversion to financial guys visiting. She'd panic, not listen and agree to anything.

xylophone

Are you the only child?

Superdude0499

Long time since anyone's called me a child (52). But, no, I have brother (lives in same house as mum), and a stepsister. My brother will stay with mum whether she downsizes or not. Brother pays his way with bills and such and is great at making sure mum's ok, walking dogs etc. Mum's financial situation is only recent discovery (not dire by any means, just can't continue the way she is). More about making sure she has enough to remain comfortably independent.

LHW99

This site could be useful

https://societyoflaterlifeadvisers.co.uk/ - their advisors have qualifications relevant to older customers.

Have you / can you persuade her to give you / your brother PoA for her finances? It could help in the future, and is much less expensive than having to go to the Court of Protection if PoA isn't in place (even if you use a solicitor to set it up, rather than DIY).

xylophone

Long time since anyone's called me a child (52). But, no, I have brother (lives in same house as mum), and a stepsister. My brother will stay with mum whether she downsizes or not. Brother pays his way with bills and such and is great at making sure mum's ok, walking dogs etc. Mum's financial situation is only recent discovery (not dire by any means, just can't continue the way she is). More about making sure she has enough to remain comfortably independent.

I was asking only because of the difficulties that can arise where one sibling gets involved with a parent's financial affairs and another (or others) disagree with the decisions taken.

You seem to be in the happy position of agreement with your mother and brother/stepsister and that it is time to explore financial options.

Is it the case that your mother has used up all her savings and is finding that her income does not cover her outgoings?

If so, and she is unwilling to sell her property, then in fact her options come down to lowering the outgoings  or increasing her income.

With regard to the outgoings,  I imagine that you have looked at  the costs of utilities etc.

Obviously if she gave up smoking (easier said than done), she would save a great deal of money. 

She could consider ways to lower the food bill (human and animal) - buy dog food in bulk?

I assume that getting a job is not an option?

Otherwise, your brother and stepsister are going to have to increase the amount they pay towards the bills?

Re Equity Release

https://www.moneyhelper.org.uk/en/homes/buying-a-home/what-is-equity-release

Sea_Shell

Superdude0499 said:

Long time since anyone's called me a child (52). But, no, I have brother
(lives in same house as mum), and a stepsister. My brother will stay with mum whether she downsizes or not. Brother pays his way with bills and such and is great at making sure mum's ok, walking dogs etc. Mum's financial situation is only recent discovery (not dire by any means, just can't continue the way she is). More about making sure she has enough to remain comfortably independent.

Do you know what your brother's longer term plans are for his housing?

Will your Mum be leaving the house (her estate) solely to him?   Or to you all (3)?

If equity is released (by downsizing) and an annuity bought, then that income will stop and the lump sum gone (depending on the terms of the policy), when Mum dies.

Superdude0499

Thanks all.

Regarding PoA. I don’t think so. She is completely with it, just head in the sand when it comes to money.

Her incomings should just about cover her necessary expenses, especially with my brother chipping in. Expenses can probably be rationalised.

My brother has no long term housing plans other than stay with mum (his partner also lives at mums and chips in). Stepsister overseas and out of picture (no animosity, just how it is). Eventually, in hopefully a long time, house will be split 3 ways.

My wife, kids and I do not need anything. My brother will sort himself out when time comes. It’s all about making mums life a little more comfy.As I say lump of money pointless unless old Jeff Bezos needs a few more quid. My mum is sensible enough to not spend what she doesn’t have ( unless there is massive CC bill I’m unaware of). So an increase in regular income fits the bill. Not particularly bothered about loss of annuity money. It’s her house after all.

Sea_Shell

Superdude0499 said:

Thanks all.

Regarding PoA. I don’t think so. She is completely with it, just head in the sand when it comes to money.

Her incomings should just about cover her necessary expenses, especially with my brother chipping in. Expenses can probably be rationalised.

My brother has no long term housing plans other than stay with mum (his partner also lives at mums and chips in). Stepsister overseas and out of picture (no animosity, just how it is). Eventually, in hopefully a long time, house will be split 3 ways.

My wife, kids and I do not need anything. My brother will sort himself out when time comes. It’s all about making mums life a little more comfy.As I say lump of money pointless unless old Jeff Bezos needs a few more quid. My mum is sensible enough to not spend what she doesn’t have ( unless there is massive CC bill I’m unaware of). So an increase in regular income fits the bill. Not particularly bothered about loss of annuity money. It’s her house after all.

Do you think he'll want to stay put and buy you out, or agree to sell it and move out?