Considering financing your 86-year-old mother's care expenses? STEVE WEBB offers an answer on the subject of immediate need annuities.
In a thoughtful move to secure his mother's future care, an individual is considering purchasing an Immediate Needs Annuity (INA) to cover the escalating costs of her residential care. At 86 years old and having been in a care home for eight years, the mother's current annual fees amount to £60,000.
An INA offers guaranteed lifetime income for care home fees, a significant advantage in a situation where the individual is seeking financial security. This income, paid directly to the UK-registered care provider, is not subject to income tax, providing a tax-efficient solution for the individual.
However, the decision to purchase an INA comes with trade-offs. Once the cooling-off period ends, the annuity cannot be refunded or reversed, meaning the individual would lose control of the capital should circumstances change. The individual would also surrender a lump sum (often a sizeable portion of the mother's savings) in exchange for the guaranteed income, which may be less than what could be achieved by managing the funds themselves or through other investment routes.
Moreover, the income from the INA is fixed to cover care fees, leaving no access to capital for other needs or emergencies. If the mother's health improves or fees reduce, the payments cannot be adjusted. Additionally, any remaining funds used to purchase the annuity do not form part of the estate and cannot be passed on to heirs, unlike keeping the capital invested.
Consulting with a financial advisor specialized in care funding is advisable to evaluate the individual's personal circumstances and whether an INA is appropriate. It's worth noting that not all financial advisors are experts in this area, but members of the Society of Later Life Advisers are more likely to have the necessary specialist knowledge.
In the current scenario, if the mother's savings run out in six years, someone will have to pay for the remaining £40,000 (plus inflation) in care fees. If the annuity is purchased, someone will have to pay for a lower amount, but sooner, probably in two to three years. The mother may need to move to a lower cost care home or seek a 'third party top-up' from a family member, which has been indicated as not an option. The care home may offer a lower cost option, such as moving the mother to a smaller room.
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, this may result in some flexibility on her fees. It's important to note that the local authority may 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 they are unable to do that at this time. The mother's pensions provide £20,000 per year, and if the annuity is purchased, the mother would have approximately £30,000 left in cash.
In conclusion, the decision to purchase an Immediate Needs Annuity is a significant one, offering peace of mind and tax advantages, but requiring a sacrifice of capital and flexibility. It's crucial for the individual to carefully consider their options and seek expert advice before making a decision.
