If you’ve had anything to do with the residential care sector, I’ve no doubt your eyes watered when the fees were discussed.
The average cost of a care home place in the UK is more than £1,000 a week (in excess of £54,000 a year). Depending on the resident’s needs, these fees can be much higher. So, how can you tackle such an open-ended and distressingly high financial commitment, without eroding all you have worked for?
If you or someone you love is in need of care and they’re not eligible for financial support, the cost of a residential home is a heavy burden to bear.
Most people in this predicament don’t think to ask a financial adviser for help. In fact, we could provide you with a lifeline. Few people have heard of an immediate care annuity (sometimes known as a care plan), but it could provide a solution to your residential home headache.
Vanishing assets
Residential care is rarely a lifestyle choice, it is a matter of need and when that need arises, the fees have to be met one way or another.
If the local authority or NHS are not able to offer a financial lifeline, most people begin by paying the fees out of income. Next to go are life savings, followed by investments and property, until the money runs out.
At this point, the resident is at the mercy of the maximum limit their local authority is prepared to pay for care. In the worst-case scenario, this might mean they have to move from the home in which they’ve settled to a less salubrious one, perhaps in an entirely different location.
Data suggests one in four individuals finds themselves in this unenviable position.
A silver lining
The good news is, there’s a little-known solution – the immediate care annuity, or immediate needs annuity.
In exchange for a one-off lump sum, the annuity provider will guarantee to pay your care costs at a given level, for life. This means you will never face the prospect of running out of money and your remaining capital is ring-fenced from future fees.
These care plans require you to provide details about your health, but unlike other types of insurance, the more problems you have, the lower the cost of the plan, because you are unlikely to live as long. In addition, any money spent on a care annuity will immediately reduce the value of your estate for inheritance tax purposes.
The amount of income paid out by the annuity can be fixed, or you can opt to increase it by a specific percentage or the rate of inflation. This is often a good idea, as your care needs – and costs – are likely to rise over time. Plus, if you swap homes for any reason, the plan simply moves with you.
Could a care annuity be for you?
Only a small percentage of residential home self-funders currently take out a care annuity. It might not be the best solution for everyone, but it is likely many more people would benefit from such a plan if they only knew it existed.
One reason for the limited take-up is that immediate care annuities can only be arranged by a regulated financial adviser, who has passed a specific Financial Conduct Authority exam giving them specialist knowledge about vulnerability, capacity and safeguarding. For this reason, the plans are not marketed directly to the public. In other words, they are something of an industry secret!
You may be wondering why such stringent rules are applied. Care annuities involve investing large sums of money and once one has been purchased, it cannot be cancelled or altered. Therefore, these irreversible financial decisions must be handled with care, so they don’t expose a vulnerable client or their family to unnecessary financial risk.
Several of our planners hold the relevant qualification to arrange an immediate care annuity and we’re happy to advise on whether such a plan would be a good option for you.
If you want to make sure your assets are not totally depleted by care costs and have peace of mind that your future is secure, this little-known annuity could be just what you need. To find out more, contact us for a free initial consultation on (01246) 298181 or email: enquiries@belmayne-ifa.com
