Considering the financial support for your 86-year-old mother's care fees? An immediate needs annuity might be an option, according to Steve Webb's advice.
News Article: Considering an Annuity to Cover Care Fees for an Elderly Parent
An individual is facing a challenging decision as they consider buying an annuity to help cover the care fees for their 86-year-old mother, who has been in a residential care home for eight years. The mother's current care fees amount to £60,000 per year, and her savings, which provide an additional £20,000 per year from pensions, may not be sufficient to cover the costs for much longer.
The individual is considering an immediate needs annuity (INA) for long-term care (LTC) costs. Quotes for the annuity have come back with a RPI-linked payment of £40,000 per year, but at a cost of £270,000. If the annuity is purchased, the mother would have about £30,000 left in cash.
Purchasing an INA has both advantages and disadvantages. On the one hand, it provides a guaranteed income to cover care costs, potentially being more budget-friendly than LTC insurance for older individuals already in care. It also removes the risk of outliving savings for care, which is notable given the six years of funds left but no certainty beyond that.
However, the large upfront premium needed for an INA could deplete the mother's assets, and once the lump sum is paid for the annuity, the capital is no longer accessible or available for other needs or emergencies. Additionally, tax implications might reduce the net income available for care, and the potential opportunity cost of using the mother's house (valued at £270,000) to buy an INA means losing the option to leverage home equity for other financial strategies.
If the mother's savings fall below England's capital limit of £23,250, she may be eligible for local authority funding for care. However, many local authorities only offer funding for a lower cost care provider, which may not cover the full costs of the current care home. The individual has contacted Adult Social Care for comment and dialogue but has received no response.
As an alternative, the mother may need to move to a different care home with lower fees or negotiate a 'third party top-up' from a family member. There is additional public funding towards the fees of those who need nursing care, but additional fees may apply later in the mother's life.
If the annuity is purchased, someone will have to pick up the tab for a much lower amount but sooner, probably in two to three years. Specialist advisers, such as members of the Society of Later Life Advisers, are more likely to have the necessary knowledge for this situation.
In conclusion, for a self-funded care home resident with about six years of funds remaining and a valuable home, purchasing an INA can provide reliable funding for LTC costs and peace of mind but at the cost of locking up capital and losing flexibility. Alternative options to consider include LTC insurance (if affordable and available), selling or equity releasing the home to fund care, or preserving the home’s value for inheritance planning. A careful review with a financial advisor is advised to balance maintaining liquidity, covering care costs, and preserving estate value based on personal health, life expectancy, and financial goals.
- The individual is contemplating the purchase of an immediate needs annuity (INA) for long-term care (LTC) costs to cover their mother's care fees, which total £60,000 annually.
- A specialist advisor, like a member of the Society of Later Life Advisers, might be more equipped to provide financial advice in this situation.
- If the mother's savings deplete below England's capital limit of £23,250, she may be eligible for local authority funding for care, but this might only cover costs at a lower-cost care provider.
- Investing in an INA would guarantee income for care costs, possibly being more budget-friendly than LTC insurance for older individuals already in care, but it could deplete the mother's assets and limit flexibility due to the large upfront premium and locked capital.
- Alternative options to consider include long-term care insurance (if affordable and available), selling or equity releasing the home to fund care, or preserving the home’s value for inheritance planning.
- The mother may need to move to a different care home with lower fees or negotiate a 'third party top-up' from a family member to lower care expenses, while also addressing potential additional fees later in her life.
