Immediate Care Annuity Plan
Exploring funding options for care home provision for peace of mind and to minimise the risk of funds running out.
What is an Immediate Care Plan?
In many ways, immediate care annuities are similar to annuities that individuals purchase with their pension funds on retirement. In exchange for handing over a capital lump sum, the purchaser receives a promise from the insurer to receive a fixed income for life.
Immediate care annuities are typically more advantageous than conventional annuities for the following reasons:
- They often pay out a much higher level of income because the purchaser’s medical conditions mean that they are unlikely to receive as many payments as other annuitants
- The other reason that people typically receive superior income levels compared with conventional annuities is that, in most cases, those opting to take out this product are significantly older
- The main advantage to an immediate care annuity, when compared with a conventional annuity, is that the income is 100% tax free if paid directly to the chosen care home – unlike conventional annuities where the income is taxable at your marginal rates (20% for basic rate payers and 40% for higher rate payers)
Won’t the Local Authority just cover the cost of care if a loved one enters a residential care home?
Not necessarily. Currently, if an individual has assets worth £23,250 or more, including the value of their home, they will be expected to pay for their care costs in full. Individuals with assets below £14,250 can expect to have their care fees paid in full but the state may still expect a contribution if the individual receives certain benefits or other income.
For those with assets worth between £14,250 and £23,250, a reducing scale of support applies based on the person contributing £1 per week to care for every £250 in assets over £14,250. For example, an individual with assets worth £20,000 would be expected to contribute £23 per week to their care (£5,750/£250 x £1 = £23).
Some assets may be disregarded for this particular means-testing, including:
- The value of life policies/annuities
- Some compensation payments held in trust or by the courts
- Some investment bonds, which have a life assurance element (check with your provider)
- Property that continues to be inhabited by a partner, dependant or certain other parties
Jointly held savings will usually be divided into two to calculate an individual’s share.
From 2016, a new increased cap of £72,000 will be introduced to limit the amount people have to contribute towards their own care costs. This will only apply to ‘personal, social care’ which typically represents a third of all residential care costs. The cap will not cover general living expenses or any costs for care which are above the rate that the local authority would pay. In reality, many private residential homes cost more that the local authority would pay which provides individuals with a funding challenge. So both before and after an individual reaches the £72,000 threshold, there may still be a gap which has to be filled by their own funds.
With the average value of a UK property estimated at £167,912* it is easy to see that even when the new higher cap comes into force in 2016, many surviving spouses who own their own home will be expected to fund their own care fees in full.
Due to a rapid deterioration in health, Mrs A’s family decided that full-time care from a residential care home would be most appropriate.
The care home fees were estimated to be £2,126.12 per month (£25,513.44 per annum) with costs anticipated to increase over future years. Based on Mrs A’s regular monthly income the family were faced with a shortfall of approximately £1,700 per month to fully cover the care costs if Mrs A should remain in the care home of her choice.
The family decided that they would sell Mrs A’s family home in order to generate a lump sum. After discussing the options with James Mann, Independent Financial Adviser, the family now fund the shortfall in care fees via the income from an Immediate Care Plan purchased in August 2010. This also ensures that sufficient monies are held on an instant access basis to provide some income for regular expenditure on personal items and a form of contingency fund.
James Mann, Independent Financial Adviser for Simpson Millar Financial Services comments:
“When discussing the main priorities for providing full time care to a family member the main concern for the family is continuity of care from the care home of their choice – an Immediate Care Plan can provide the family with (a) greater flexibility when choosing a care home as Local Authority Funded Homes need not be the only options and (b) assurance that funds will never run out leaving them to concentrate on enjoying the remaining years with their loved one without the financial burden that many face when considering care home options.”
“With care home fee rising at a rate higher than inflation over the past few years it is important that families receive Independent Financial Advice when considering Immediate Care Plans to fund care fees this ensures that the options are properly addressed and considered and the plan is set up to best meet the individuals needs.”
Why Simpson Millar Financial Services Ltd
Simpson Millar Financial Services Ltd will provide appropriate care fee planning advice to meet the needs and objectives of your elderly relatives. James Mann and Nicola Hartley, our Independent Financial Advisers, hold a specialist qualification in Long Term Care Planning and are therefore appropriately qualified to assist you with your requirements.
Because Simpson Millar Financial Services Ltd is entirely independent, we can provide advice on products from the whole of the market rather than merely from a handful of providers such as tied agents and company representatives. This means that we have a wider range of products to choose from to meet our clients’ needs and objectives.