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    • gibbo9
    • By gibbo9 12th Sep 18, 10:45 AM
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    gibbo9
    Immediate needs annuity question
    • #1
    • 12th Sep 18, 10:45 AM
    Immediate needs annuity question 12th Sep 18 at 10:45 AM
    Hi,I realise this may not be the right place but I know people on here have helped on this subject.
    From what I read the are 2 providers of these, but who are they?
    Most people seem to recommend advisors associated with SOLLA.
    Any local to us are restricted not independent and all seem to be part of st jame's place. SJP website lists Friends Life and Just as their providers of immediate needs annuities.
    Are these the 2 people mention?
    Hope someone can lighten the darkness for me as I need to start my enquiries soon
    Many thanks in anticipation
    Ray
Page 2
    • dunstonh
    • By dunstonh 14th Sep 18, 12:55 PM
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    dunstonh
    In what scenarios do immediate needs annuities makes sense?
    Guarantee of payment for life. its the secure option.

    However, statistically, the odds are that it will be the option that is least likely to be the most cost effective. Problem is that you don't know the date of death. So, its a gamble at worst or a judgement call at best. Will she be like the average and pass away within 2 years (where an annuity would be poor value in hindsight) or will she go on for years (where the annuity will be better value).
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • lisyloo
    • By lisyloo 14th Sep 18, 12:59 PM
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    lisyloo
    If your MIL is deemed to need a home she is in trouble.

    She is already there (sorry I thought that was what immediate meant).
    She did have dilerium in hospital and apparently that means her chances of dying during the next year are high (but she hasn't).


    Keep her immobile by doing everything for her and she won't live long.
    She's quite immobile due to the arthritis she's had for 50 years, but my experience doesn't fit what you've said.
    People failing to look after themsleves get infections (UTIs particularly for women), dehydrated and mal-nourished).
    She's in a good home so being well fed, watered, medicated and any issues treated very quickly by nurses on site.
    She's been in their about a year now and only had one UTI and not even a sniffle.
    Her sister is 95 and still alive.
    We thought she might follow her husband of 60 years but she's forgotten he's dead so not suffering normal grief.
    • fred246
    • By fred246 14th Sep 18, 1:29 PM
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    fred246
    The average stay in a care home is 26 months.

    https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2017-09-05/8937

    The chance of running out of money lissyloo is virtually zero. I understand that an annuity gives a guraranteed inheritance which can be tempting but your chances of losing are massive. I wouldn't touch an annuity with a bargepole in your situation.
    • lisyloo
    • By lisyloo 14th Sep 18, 1:33 PM
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    lisyloo
    The average stay in a care home is 26 months.

    Yes, but not everyone is average. Her sister is still going at 95 and is 4 years older.


    But thanks for you opinion. That is my gut feeling also.
    • Linton
    • By Linton 14th Sep 18, 1:46 PM
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    Linton
    A second thought, perhaps a reasonable criterion for taking a care annuity could be that it costs less than a particular number of years care home expenses, say 2 or 3. This should control the risk that a large amount of MIL's wealth would be wasted. However I have no idea whether this may delay taking an annuity until too late - the ONS data suggests that on average the 50% in 3 year death rate isnt reached until one is 95. You do need the options/costs from an IFA.


    Regarding investment, bearing in mind that some of the money wont be used for 6 years it may be worth considering putting 10-15% in a cautious fund.
    • lisyloo
    • By lisyloo 14th Sep 18, 1:58 PM
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    lisyloo
    bearing in mind that some of the money wont be used for 6 years

    But it probably will, because in 6 years she'll probably be dead.


    I am thinking of using some longer fixed term savings accounts after checking out the conditions with the providers should she die before the end of the term.


    If I were a risk averse person and looking out for my own self-interest then I'd say that no-one is going to sue me for not taking an anuuity or not taking investments.
    • Malthusian
    • By Malthusian 14th Sep 18, 2:38 PM
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    Malthusian
    But it probably will, because in 6 years she'll probably be dead.
    Originally posted by lisyloo
    But if she isn't, that part of her assets won't have been stuck in cash for 6 years losing its value (and therefore reducing her ability to pay for her care fees - admittedly not to a degree that is likely to significantly change the period for which she can afford to pay for her own care).

    However I have no idea whether this may delay taking an annuity until too late - the ONS data suggests that on average the 50% in 3 year death rate isnt reached until one is 95.
    Originally posted by Linton
    Most people in the ONS data aren't in care homes. Only 16% of the over-85 population are.
    • Linton
    • By Linton 14th Sep 18, 2:51 PM
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    Linton
    Most people in the ONS data aren't in care homes. Only 16% of the over-85 population are.
    Originally posted by Malthusian

    I know, but sadly there doesnt seem to be any data for the over 90s which could be a much higher %.
    • lisyloo
    • By lisyloo 14th Sep 18, 3:09 PM
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    • 11,092 Thanks
    lisyloo
    But if she isn't, that part of her assets won't have been stuck in cash for 6 years losing its value
    Well that is the big IF isn't it.
    My feeling is that she is unlikely to be alive in 6 years time at 97 (she's already spent a year in a home and had delirium).

    Loosing a small amount of value due to inflation is the lesser of two evils compared with capital loss IMO. There are 3 year rates of 2.41. How will the local authority react (or the beneficiries) if I speculate with the money and lose the capital? (I am aware if was a cautious investment mentioned).


    As an aside I've just put the flat on the market now that it's been emptied, cleaned and decorated.
    • Shedman
    • By Shedman 14th Sep 18, 6:38 PM
    • 210 Posts
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    Shedman
    The problem is that no-one can tell you exactly how long she will live for. The financial people will play on that uncertainty and they could benefit nicely. If your MIL is deemed to need a home she is in trouble. She has lived way over normal life expectancy. Someone told me that at 94 you had a 50% chance of living the year. Get her in a home full of bacteria. Keep her immobile by doing everything for her and she won't live long. Immobility is a massive killer. Greatly underestimated. So sell the house. Put the money in high interest accounts and wait. Fantastic advice from an anymous person on the internet.
    Originally posted by fred246
    I'd argue that in a home they are eating better (proper meals with veg as opposed to Kershaws frozen meals ...), less likely to have a fall (which is often the precursor to rapid deterioration), being more closely monitored, have company and activities rather than sat watching TV all day, being bathed regularly, etc so may actually be at less of a risk. My MiL has perked up enormously in the few months she's been in a home,is more mobile, talkative and generally appears healthier.

    Of course an annuity is a gamble but the family feel that the piece of mind knowing that no matter how long she lives (not that I personally necessarily see her longevity as an upside... ) there will be no issue with the fees or for her to have to move homes is worth the risk of potentially losing out (and it's her money anyway).

    We realise the insurance company must generally win (otherwise they wouldnt be in the game) but they don't actually know the individual and can only base the premium on statistics and third party reports so who actually has a better idea of how robust a person is.. them or the family?

    In MiL case the statistics indicate that as an 86 year old women she has a 50% chance of living beyond breakeven point of 92. Given how's she's improved and that theres nothing obvious that's immediately life threatening we feel that's pretty reasonable odds.
    • fred246
    • By fred246 14th Sep 18, 10:15 PM
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    fred246
    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.
    • Shedman
    • By Shedman 14th Sep 18, 11:42 PM
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    Shedman
    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.
    Originally posted by fred246
    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
    • By fred246 15th Sep 18, 12:26 AM
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    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
    • By Shedman 15th Sep 18, 12:54 AM
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    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).
    Last edited by Shedman; 15-09-2018 at 7:50 AM.
    • fred246
    • By fred246 15th Sep 18, 1:55 AM
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    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
    • By Linton 15th Sep 18, 4:38 AM
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    Linton
    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.
    Originally posted by fred246
    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
    • By Shedman 15th Sep 18, 7:34 AM
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    Shedman
    [QUOTE=Linton;74791647]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)
    Last edited by Shedman; 15-09-2018 at 7:51 AM.
    • Shedman
    • By Shedman 15th Sep 18, 8:18 AM
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    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)
    Last edited by Shedman; 15-09-2018 at 10:08 AM.
    • LHW99
    • By LHW99 15th Sep 18, 10:44 AM
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    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
    • By Shedman 15th Sep 18, 12:54 PM
    • 210 Posts
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    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
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