annuity plans to cover care home fees

[Raggedrobin]

The main variable being the next election, on that it could change and delay things. As we are, care home basic costs would always eventually be met by an LA if you had no money, wouldn't they, so not sure I understand what would be the incentive to get an annuity or whatever for them.
With the hotel costs, I don't get that bit at all, what the govt means. If a care home can only charge £12k a year but they are currently charging self funders a lot more, who picks up the tab for the difference? Won't that cost the govt a huge amount? Otherwise surely the care home would cease to be profitable?

 

[lulubel]

What a really interesting thread. Some real food for thought.
Thank you... xx

 

[nitram]

Moe to think about.

If you do not have a policy you self fund your choose of home until the funds start running out when the LA starts to contribute but they may ask you to change care home.

This is unlike other insurances, if your boiler breaks down or you crash your car (not comprehensively insured) nobody helps you if you cannot afford the replacement.

One big advantage of having the cover is that you get the chance to choose the care home.
Is the ultimate aim to save cash or guarantee a choice of home?

 

[WILLIAMR]

Moe to think about.

If you do not have a policy you self fund your choose of home until the funds start running out when the LA starts to contribute but they may ask you to change care home.

This is unlike other insurances, if your boiler breaks down or you crash your car (not comprehensively insured) nobody helps you if you cannot afford the replacement.

One big advantage of having the cover is that you get the chance to choose the care home.
Is the ultimate aim to save cash or guarantee a choice of home?

Hi Nitram

You said you can choose your care home if you self fund.
After being looked at by 50 homes only 2 would accept my step mother in the end due to violence and she was CHC funded.
I did speak to 1 relative and she said her father started out self funded for 2 months and suddenly started to get violent.
He had to move homes and the only 1 which would take him was the one my step mother was in and he was then CHC funded.
Under those circumstances if he had been covered by an annuity I am not sure what would have happened to the money.

William

 

[Pickles53]

Hi William

The adviser told us that if a person gets CHC funding after starting an annuity, the annuity continues to pay out the same gross amount which then is extra income to the person so is subject to the usual income tax rules.

 

[Pickles53]

The main variable being the next election, on that it could change and delay things. As we are, care home basic costs would always eventually be met by an LA if you had no money, wouldn't they, so not sure I understand what would be the incentive to get an annuity or whatever for them.
With the hotel costs, I don't get that bit at all, what the govt means. If a care home can only charge £12k a year but they are currently charging self funders a lot more, who picks up the tab for the difference? Won't that cost the govt a huge amount? Otherwise surely the care home would cease to be profitable?

Hi RR. I think the reason for separating the hotel costs from the care costs is that under the scheme the 'cap' on the total amount an individual can be asked to pay (£72k I think) relates only to the care costs. So a home might charge £12k for hotel costs annually plus (say) £25k for the care costs, rather than, as now, wrapping all the costs into a single fee of £37k annually. As a self-funder you would pay the full amount every year until the amount you had paid for the 'care' element hit the 'cap'; after that you would still have to find the 'hotel' costs. Remember too that whatever fees you have paid before the new scheme comes in, they don't count towards the 'cap'.

I have asked the adviser today how she thinks this new scheme might affect an annuity taken out before the new rules come in, will post whatever new information I get.

As Nitram says, one of the key issues is that if you don't need LA ££ you are not at any risk of your relative being asked to move. This is important to us as the home we prefer is more expensive than some others locally.

The other point is if you don't need to use all your relative's capital to buy the annuity, you may be able to protect more than you would be able to with LA funding. If there is more than£23k left, after buying the annuity, your relative keeps it and it could still be inherited.

 

[Raggedrobin]

Thanks for that.

 

[nitram]

There are two lifetime caps, both at LA assessed rate not care home fee, hotel is £12k , care is £72k.

The resident pays the care home fee but only the LA tariff counts towards the cap.

EDIT

>>>EXPLANATION OF CAP<<<

 

[Pickles53]

There are two lifetime caps, both at LA assessed rate not care home fee, hotel is £12k , care is £72k.

The resident pays the care home fee but only the LA tariff counts towards the cap.

EDIT

>>>EXPLANATION OF CAP<<<

I see I haven't quite got it right, the article does make it clearer BUT as you say it also makes clear that if your chosen home's fees are higher than the LA rates then the extra is down to you, so it reinforces the earlier point is that a resident may have to move to a less expensive home once LA funding comes into the equation.

Regarding how this new legislation would affect care plan annuities, my adviser does not think there will be much impact as the fees still have to be paid and if mum was fortunate enough not to need the full amount for fees she would receive the remaining annuity payment directly as an income (taxable). Apparently there is one provider who already includes a mechanism for adjusting the size of the annuity downwards and repaying a % of the original capital if the care fees payable are reduced as a direct result of new legislation but it's way too complicated to reproduce here.

 

[Raggedrobin]

Thanks again Nitram. I still find every time I consider the matter of how the new care caps will affect our finances, it makes me want to go and have a lie down, it seems to pickle my brain.
Also, as far as I can gather, if you have been self funding for years it doesn't count towards either cap if you haven't had a financial assessment done, or so I seem to have gathered. feel free to correct me anyone if I'm wrong.
Sorry I've gone a bit off the annuity plan topic.

 

[Pickles53]

Thanks again Nitram. I still find every time I consider the matter of how the new care caps will affect our finances, it makes me want to go and have a lie down, it seems to pickle my brain.
Also, as far as I can gather, if you have been self funding for years it doesn't count towards either cap if you haven't had a financial assessment done, or so I seem to have gathered. feel free to correct me anyone if I'm wrong.
Sorry I've gone a bit off the annuity plan topic.

I think that is right, somewhere I have read that this in itself will create a problem for LA's as they will have a lot more people requesting assessment. I see no point in asking for this now as mum would be way over the threshold and would not in any event meet the SS threshold for residential care.

 

[Forgetmenot%]

hope this explanation of the 'cap' helps

April 2015 - A “cap” on the total amount that an individual will have to pay towards their care. Once an individual has spent up to the level of the “cap” on their care, the local authority will start to help towards their care costs. The “cap” is not due to be introduced until 2016 and is expected to start at £72,000.

The “cap” – what does it actually cover?
• The cap will only cover the cost of personal social care (e.g. washing, dressing, toileting, etc.) which is estimated at around one third of all residential care costs. It will not cover hotel costs (i.e. accommodation and food) which must still be met by the individual. It is also subject to both the eligibility criteria and the prevailing local authority rate.
• The cap only includes services that are available at the local authority rate. If you want a care home which costs more than the local authority rate, perhaps a higher quality or more luxurious home (akin to a hotel”), the additional costs will be borne by the individual. In addition, any spending above what the local authority would have paid would not count towards the cap.
• Only those with needs classified as substantial or critical will be entitled to social care assistance based on the current four level system, which mean they face either a low, moderate, substantial or critical risk to their independence. The Department of Health presentation referred to individuals with “very complex care needs such as dementia”.


In terms of finding an adviser who can help please search the SOLLA (Society of Later Life Advisers) who all specialise in this area. Good luck

 

[Mick_P]

We've been looking into annuities, being advised by Saga's service, and here are some ballpark figures that might be helpful (though everyone's circumstances are different).

Mum (86 years old, vas-d, generally physically fit though a multiple-times mini-stroke sufferer with heart failure and diet-controlled diabetes) will be self funding and after her income is taken into account we will have a shortfall of £17,000 per year. We discussed perhaps getting quotes for an annuity to give just enough, but were advised – and we agreed – that it would be better to build in a cushion for unforeseen costs and rises in fees.

So, we're looking at an annuity that pays £19,000pa, which would give us a cushion of just over £2000 per year.

£115,000 gets you one that stays fixed at £19,000pa.
£124,000 gets you as above, but with a protection plan that repays 50 per cent of the original cost, minus any payments already made (so you can see that the total of the refund would diminish rapidly, so is it really worth the £9000 extra?).
£140,000 gets one that goes up by 5 per cent per annum.
We're waiting for a quote on one that rises by 3 per cent.

We were advised to try to get assurance from the care home that the fees will not rise by more than a certain amount pa, say 3 per cent, explaining to them that we are looking to buy an annuity that rises by that much (even if we choose to get the 5 per cent one – they don’t have to know that). The advisor said that in many years of offering this advice, they've only once come across a care home that has refused to do so. As the advisor pointed out, a resident with an annuity is a desirable one.

I found this interesting: it’s actually that the full sum from the monthly annuity goes to the care home, and Mum’s income then covers the shortfall. So when one talks about having a £19,000 annuity that has a built-in cushion, the way the ‘cushion’ manifests itself is that less money each month comes from Mum’s own account, so a bit of an excess builds up there. That does make it very easy to see what’s what, because we'd know that what’s in Mum’s account/savings is hers to spend, save etc as she/we decide.

And yes, as mentioned elsewhere here, an annuity paid directly to the care home is tax-free.

Hope that's of some help. It's a pity the original poster hasn't come back with their experiences, though maybe they're still wading through it all.

 

[Cornishman]

We were advised to try to get assurance from the care home that the fees will not rise by more than a certain amount pa, say 3 per cent, explaining to them that we are looking to buy an annuity that rises by that much (even if we choose to get the 5 per cent one – they don’t have to know that).

In my opinion that would be excellent advice:

My mother has been self-funding from early 2003 to the present time (apart from a CHC eligible period 2009 to 2013).

When she was first in the home we were paying around £2400 per month. It's now around £5400 per month.

This equates to year-on-year increases of about 10% - far in excess of the Government's RPI or CPI measures of inflation.

One year I did write to the company on that very point, and was told the disproportionate increases were due to staff costs, fuel and food increases and the number of CRB checks. (presumably for reasons of space, they were unable to find room to mention the CH Group's £16M profit across the UK!)

 

[kkerr]

Hello "original poster" back! Sorry for the delay - caused by Mom's situation changing on almost a monthly basis. She is currently in hospital, dementia ward, for a period of assessment as care home was "not coping".

Anyway - financially - I have had the paperwork for her retirement fund drawn up to change it to an annuity. Currently my moms retirement (and sole source of income) is payed once a year in a lump sum, and will be all paid out in 5 years (she has been receiving it for the past 5 years). With the amount left, I found I could buy and annuity, that leaves Mom with a small short-fall (which will be covered yearly by the sale of her house) and pays out until death. In addition, we were able to add a garuntee that if she dies in the next 10 years, the remaining annuity is paid to a beneficiary. So for example, if she were to pass away in 6 years time, the monthly annuity sum would be paid to her beneficiary for the next 4 years. If she lives 10+ years, the annuity continues to pay until her death. Overall, we lose a few thousand with the annuity, but it does garuntee Mom an income for the rest of her life. It makes it easier for me to look at care homes knowing we will have a secure, fixed budget for the remainder of her life. So no issues about running out of money, will SS fund the home etc? If she passes away in the next couple of years, her beneficiary (me) will lose a substantial amount (as otherwise I would have inheireted the remainder of her retirement in a lump sum) but am not concerned about that. Don't want to see a penny of that money - but want Mom to be able to use to find the best care home for her.

That was our conclusion/solution.

 

[maybell]

Annuities

This has been a really useful thread (if somewhat complicated!) I was very interested in the outcome of the original post as the situation is comparable to my own ( mum is 75, physically very healthy, but now unable to manage on her own). We're thinking of care homes but unsure how to fund it with the usual concerns re social services and what happens when her income is all spent.
If anyone else has any facts and figures on the costs and process of obtaining an annuity I would be really interested to hear.

 

[Pickles53]

The final quotes we had for my mother (then aged 88) would have meant that the capital she invested was equivalent to about 4 years care home fees. Sadly by the time we got the figures her health was deteriorating much faster so even the financial adviser recommended that we should not proceed. We lost her two weeks ago. As with so many aspects of this disease, it is desperately hard to predict what will happen, but in our case mum's illness was always ahead of any plans we made....

 

[Mick_P]

Really sorry to hear about you losing your mother Pickles. It's terrible that we have to think about life expectancy in these situations. We're about to get quotes from another source and then see where we're at.

It's interesting that the manager at Mum's care home said that none of the other residents has an annuity, and even one of our financial advisers said that people who take them up in this situation are in the minority. We're still undecided as to what to do, but if it comes down to a choice of risking loosing out financially or having the threat of Mum being moved in six or seven years' time because we have no money left, well, at the moment I'm leaning towards the annuity. But Mum is almost 87 and has been suffering with VaD for at least five years... arghhh! So difficult.

 

[Quilty]

Which had an article last month on care fees and annuities

Hello, I get which magazine monthly and there was an article last month. If you contact which by email they might be able to give you access to the information. You might need to join which but the fee is small and you get access to unbiased reviews on lots of things.

The article gave lots of examples and pros and cons. They also showed best and worse companies to buy annuities from - fees etc. I would think due to the high cost it would be worth looking this up.

 

[Mick_P]

Hello all

I thought I'd come back on this, given that we have now made our decision.

We went to two financial advisers, neither wanting any fees unless we took them up on their advice. It seems that there are only three companies offering care fee annuities in the UK: Just Retirement; Friends Life; Partnership.

Of those, we found Partnership to be the cheapest by far, though of course every person's situation is different. We now have in place an annuity that cost us £93,500 to buy and pays out £18,500 per year in monthly instalments. We have also built in an annual percentage increase in that payout. It will continue to pay for the rest of Mum's life. Being brutal about it, if Mum lives for another four and a half years, we'll have got back what we paid in. However, it's not all about that, peace of mind being a valuable thing.

Of course, this doesn't cover the full cost of care, but is the shortfall once Mum's monthly income (from pension, benefits etc) has been taken into account, and leaving Mum with around £25 per week for extras.

There was talk of us perhaps trying to negotiate with the care home to get them to agree not to raise the fees by more than X percent per year, and we've heard of people who've been successful in doing this. However, we did wonder if that would lead the home to raise the fees by exactly that agreed maximum, whether necessary or not, and so for now we've decided not to approach them on this matter and to wait and see how things pan out.

I hope that helps people to make a decision if they're considering this route.