How can an immediate needs annuity be used to pay for my care?

If you are over the age of sixty and you are receiving care either in a residential care home or in your own home by a home care provider, you are eligible for an immediate needs annuity.  The care home must be a registered with the Care Quality Commission (CQC), however a home care provider does not need to be registered to provide care at home.

A care fees payment plan is suitable for anyone who needs long-term care and is eligible for one.  It is a particularly attractive option for those who choose to receive care in their own home.  It means the cost of care can be paid and the person needing care can remain in the comfort and familiarity of their own home.

It is not really suitable for someone who is receiving care towards the end of their life, or who has a life-limiting illness or complex care need.   The most common concern among families considering an immediate fees annuity is that their loved could die soon after taking out the plan and paying the premium.  What are the advantages and disadvantages of a care fees annuity?strong>

There are many significant benefits to setting aside money, whether that is savings, pensions or investments in later life to purchase an immediate needs care plan in later life:

• Peace of mind and reassurance that the cost of care will be part or fully covered for the rest of your life
• Reduces financial burden on the rest of your estate leaving more for your family to inherit
• The money you receive from the annuity will not be taxed, unlike any other annuity
• The plan will consider the rate of inflation and raise at a rate that mitigates against inflationary rises

There are also some disadvantages of taking out an immediate needs annuity:

• The plan may not be sufficient to cover care costs to meet your needs in the future. This may be due to the rising cost of care or an increase in care needs that was not determined when the plan was taken out.
• Once you buy the annuity you cannot change your mind, although some providers do offer a cooling off period, which is typically 30 days.
• Depending on what you receive from your annuity, you are unlikely to be eligible for another other means-tested benefits from your local authority

Eric and Alma had been married for over 65 years. Sadly, Eric’s deteriorating health meant that a move into a care home seemed an inevitable end to their life together. Alma and the family wanted him to stay at home but knew that this would not be an easy decision, as Eric needed specialist personal care and Alma was unable to provide this. As a potential solution, the family considered having a live-in-carer and both arranged a meeting with The Good Care Group. Following our assessment, we knew we could deliver a live-in care package to meet their needs.

Expert advice from Symponia

To help them explore the best way to fund the care they needed, they talked through the option of equity release with the local Symponia member, who suggested that the whole family became involved in the discussions. Symponia is an organisation dedicated to providing independent financial advice to families so they can finance their private care fees. A key decision was how much money should be released. Did the family just take enough for one year and continue to draw down each subsequent year, until the maximum sum had been exhausted.

Exploring an immediate needs care plan

To help the family get the peace of mind they desired, the advisor suggested they explored an immediate care plan.  They calculated the income Eric and Alma received, by way of pensions and other investments and compared that to their expenses, which had to take into account not only the household costs, which largely remained unchanged, but importantly Ericks care costs.

After assessing Eric’s health, the cost of the immediate care plan, with a built in automatic 5% inflation was £92,000.  Eric and Alma then used equity release to buy the care plan. As their property was valued at over £500,000, the release of equity was just under 18.5% of the total value.

This meant that Eric was able to receive the high-quality care at home he needed, and they both had the peace of mind that his needs would be provided for, for the remainder of his life.  Much needed reassurance when they needed it.