Using immediate needs annuities
One of the biggest challenges of funding for care is uncertainty around how long someone will live for when they go into a care home. We also acknowledge that care home fees can be very costly. So what does this mean in terms of risk?
If you underestimate how long someone will live, they could run out of money and be left without the care they want and need.
It’s impossible to know how long someone may live in a care home. But we do have statistics on life expectancy and average stays in a care home, which should be considered when putting a financial plan in place.
A BUPA study found that one in ten people admitted to a nursing home, with an average annual care home cost of £44,152, will still be alive after six years. That could cost over £250,000.
This creates uncertainty. It's difficult to predict how long someone might spend in a nursing home and the impact of a long stay can be financially devastating. An immediate needs annuity can provide a guaranteed monthly payment for life to help pay for your client's care home fees.
In exchange for a single premium, an immediate needs annuity pays a monthly payment to the individual's UK registered care provider for the rest of their life. Fees are likely to increase with inflation over time and there are two ways to deal with this. Firstly, your client can choose for payments to increase by a fixed percentage or in line with RPI to help mitigate the impact of future price rises. Secondly, care increases could be paid for from other assets if available. Either way, the guaranteed lifetime payment will remove a lot of the financial uncertainty when someone enters a care home.
- Peace of mind that a guaranteed payment will be paid for life towards care costs.
- Under current legislation there is no tax to pay on the payments if they're paid to a UK registered care provider. However, the rules governing tax may change in the future and could affect your client’s payment.
- Capping the cost of care so that you can protect your client's remaining assets.
- Flexibility around who the payment is paid to if your client changes care providers or no longer needs care.
- Your client could get back less than they put in.
- If your client no longer requires care, or becomes eligible for NHS funding, they may not cancel their immediate needs annuity. However, it can be paid directly to the individual, but may be subject to income tax (payments we make directly to your client or anyone other than a UK registered care provider may be subject to income tax).
- Receiving payments from an immediate needs annuity may affect your client’s ability to claim for means-tested state benefits.
Who might it be suitable for?
- Anyone looking for peace of mind that some of their care costs will be paid for the rest of their life.
- Someone looking to mitigate the risk of running out of money.
- Someone looking to protect any further assets they may have.
More from care funding
Find out more information from our care funding resources.
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