A care fees annuity is designed for people who need, or will certainly soon require, residential care. These annuities are meant to cover the on-going increasing costs of long term care when the person with the annuity starts to require full time residential care or nursing home care. The insured, pre funded long term care insurance route available of paying for nursing home fees is not really an option since there is a need here for immediate care, and hence the annuitant is effectively an uninsurable risk for pre-funded insurance policies.
A care fees annuity is sometimes called an Immediate Needs Annuity, and works on the basis of the annuitant having a much reduced life expectancy because of their inability to look after themselves without the need for assistance. Therefore, the amount of income received from the annuity is likely to be much more generous than for other types of annuity, since the life expectancy of the individual at the time of entering a nursing home is likely to be impaired.
Care fees annuity payments, resulting from much higher annuity rates, are made for the provision of an individual’s long term care needs and will be paid for as long as they live. This can give the annuitant and also their beneficiaries some peace of mind knowing that the cost of that care will continue to be met and the remaining value of the annuitant’s estate will be preserved even if they actually continue to live for a very long time.
Care fees annuities are different to conventional annuities, bought from a pension fund, in that the source of the funds to buy the pension annuity is from a one-off lump sum premium, paid by the annuitant, their estate or their beneficiaries. People who use a care fees annuity are treated as being not liable to tax on the payments made by the insurance companies under these annuity contracts, provided that the payments are paid straight to the provider of the care. If the income from the annuity is instead paid directly to the annuitant it could be liable to income tax.
Applications for care fees annuities do naturally go through a process of underwriting, where medical risk is assessed. This may involve considering the applicant’s medical records, or their ability to perform certain Activities of Daily Living (ADL’s).
Features include the ability for payments to be indexed to protect against inflation. This can be with the Retail Prices Index (RPI) or perhaps at a fixed percentage per annum. You can also choose for some of the money you paid in to the policy to be paid back to your estate, if you should die within a set period of time. This can be done by selecting the capital protection option (in full or in part) for an additional cost. The cost of buying a care fees annuity can reduce a person’s estate for the purpose of any liability to inheritance Tax.
There is a process of applying for a care fees annuity. You need to make contact with your Local Authority for a Needs Assessment. This will allow them to identify the level of care required. It could be that any care needs can still be met at home. Equally it could instead be that the need is primarily a health need where 24 hour round the clock care should be provided by medically trained staff, and in this case care should be provided by the NHS. If the Needs Assessment does conclude that medical care is not required, the next step is for a Financial Assessment. If you have assets of, currently, £22,500 or more, then the cost of the care will have to paid by the individual. Only if the assets are less than £13,500 will the council pay the total cost of care.
If you do not qualify for the NHS Care or the financial assistance for social care, you have to consider how to fund the ongoing costs of care. The costs do vary considerably- depending on your location and the quality of the home, but typically nursing care can cost a great deal; as much as £34,000 per year, and residential care can cost as much as £23,500 p.a. It is a very expensive time of life.
