Annuity for Care Home costs?

MPDNA

My father was recently placed in a care home and is no longer able to look after his finances. This task has been left to my sister and myself.
His house is being sold in order to pay for his long term care and we have been advised that the best way to finance it was to take out an annuity.
The house should fetch in the region of £250k. We are advised that the annuity would cost around £80k ( this would cover the cost of his care for the rest of his life, regardless of how long he was to live. Approximately £40k a year) and the rest would be invested offshore to get a return of around £10k a year.
I am looking for advice from anyone who can tell me if this is the right thing to do.

EdInvestor

A long term care annuity is certainly a good way of capping the cost of care and keeping control over what happens to your father.

Some useful tips about the financing care here:

https://www.hsbcpensions.co.uk/nhfa/pdfs/is6.pdf

When you say the rest of the money would be "invested offshore" I assume you mean an offshore bond is being recommended? This can be an expensive way of investing your father's funds.

Are you consulting an IFA who specialises in care funding?

MPDNA

Thanks for the advice. I had a look at the link you suggested and found it very interesting. It also made me aware that the best deal isn't always the first one you are offered. Obvious I know but I didn't realise the number of products that are available. We'll just have to take a little more time making a decision and not jump blindly at the first thing that's shoved under our noses.
Not sure if the advice we got was independent so even more reason to be cautious.:o
Many thanks.

dunstonh

There is only a handful of companies that do immediate care annuities.

Ed tells everyone that bonds are expensive but like any retail product there are cheap ones and expensive ones.

Not sure if the advice we got was independent so even more reason to be cautious.:o

Suggest you get indpendent advice then. From 2009, the only advice you will be able to get will be independent. So, you may as well use the 2009 rules now and assume anyone who isnt independent isnt an adviser but a salesman.

EdInvestor

There can be really massive variations in the amounts you get from care annuities - more than any other product.It's really essential to get independent and qualified advice from a specialist in elderly care financing as the area is wildly more complicated than normal pensions and investment issues.

Katykat

MP - I'd think carefully. I know this is a distasteful subject, but you have to think logically. £80.000 is a lot of money, but try to think outside the box. Its about 4-5 yrs care home fees. Do you think your father will be in the home for that long? ( Yes I know it can be impossible to tell, but te sad fact is that the average time spent in care homes is 2yrs ) I may be wrong here, but doesn't an annuity die with him? If so, you may lose out. You would have to make a decision based on assumptions and be prepared to accept that you may lose quite a considerable sum of money 9 assuming that the house would have been yours eventually.
SYSTEM STINKS DOESN'T IT - I KNOW, I'M IN THE SAME SITUATION.

EdInvestor

( Yes I know it can be impossible to tell, but te sad fact is that the average time spent in care homes is 2yrs )

More like 3, I believe.

A lot of families decide to gamble that the parent won't survive for long and find they end up spending all the money as the parent lives on and on.Eventually the money runs out and the parent's care has to be paid for by the council.He faces the possibility of ending up in an inferior care home, unless the family pays top-up fees from their own resources. Of course there is no legacy left for the family.

In the OP's situation, where the annuity will cost well under half the parent's total assets there is no need to gamble.The annuity will enable both a guaranteed standard of care for the parent, a growing legacy for the family and peace of mind for all.

A win/ win IMHO.

MPDNA

I am inclined to think the annuity is a good idea. Especially as the care home where my father is at present costs in the region of £3,500 per month. Outrageous! The annuity would therefore be the equivalent of 2 years care costs, that is of course assuming that the quote of £80k is an accurate one !

Katykat

I've been doing a bit of research as this has got me thinking. Anyway, there are only 3 or 4 companies who provide these annuities and they all work on the basis of charging 4 years fees. I wish It was easy to make the decision because in my case this would cost £72,000 which is more than half mums assests and her health is quite volatile. Some days her physical health is poor and then she recovers and seems to plod on. Her mental health however is raapidly declining, but this would not neccesarily shorten her life. At present her house is not selling ( whose is?) so I've still got time to decide. At least until her bank balance is down, then S services make the decisions.

treliac

Care annuities seem, on the face of it, a good idea. However, you've hit on some of the drawbacks.

The statistics always were that someone would live, on average, for another 18 months once moved into a care home. Certainly, social services are unlikely to consider anyone of sufficient need until their needs are very high - in the substantial/critical category.

The companies who sell annuities are businesses like any other and in business to make money. So that tells me that their cost calculations are very carefully made. It's up to the individual to make the best decision they can at the time about whether an annuity is likely to be cost efficient for them.

The other possibility that anyone in a similar situation should consider (or next of kin on their behalf) is whether Continuing Health Care could be obtained. This is fully NHS funded care that they would be entitled to if their needs are complex enough and, broadly speaking, if their need for care is primarily on health grounds.

I believe there are many people who have been denied this in the past, who have had legitimate entitlement. It's a political hot potato and, as with many things, can be worth fighting for, although you may have to fight and not give up too easily.

http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_079515