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Immediate Needs Annuity
pension values can be higher from valuation options Ask for a free Care quote
Take control of your relatives care costs using an immediate needs annuity with a free indicative quote.
Yes
Free quote - Receive an estimate of the funds you need
Yes Cap the cost of care - Limit the total cost of long term care
Yes Inflation proof the income - Meet future rise in care costs
Yes Reduce inheritance tax - The annuity can reduce IHT liability
Yes Specialist advice - We can help you select the best option
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Immediate needs annuity   Long term care

Cap the cost of long term care

Half a million people are in care homes in the UK and only a small proportion receive some kind of assistance from the state with the balance of the cost provided from savings. To allow family members greater control of the finances it is possible to cap these high costs by purchasing an immediate needs annuity.

The cost of long term care will depend on the health of the individual. Where the individual only needs companionship as well as help with the daily activities of life such as washing, feeding and dressing, this is provided by a residential care home. Where the individual suffers from a medical condition that requires the attention of a nurse, this is provided by a nursing home.

An individual may be entitled to state benefits or NHS funding for long term care, even if they pay their own nursing home costs.

Residential care may cost an average from £24,232 to £30,888 depending on the location in the UK, whereas nursing care could cost an average from £28,756 to £41,912 depending on the location in the UK.

This means that if the estate is large, a significant amount of its value could be used on long term care if the elderly relative lives considerably longer than expected and very little eventually left to the beneficiaries, such as children or grandchildren. The following is a breakdown of average costs in different parts of the UK.


Long Term Care Costs
  Location
Residential
Nursing Care
  East Anglia
£29,328
£38,272
  East Midlands
£26,312
£33,800
  North
£25,324
£30,628
  North East
£24,492
£33,800
  North West
£24,336
£33,644
  Northern Ireland
£24,232
£28,756
  Scotland
£28,860
£34,944
  South East
£30,888
£41,912
  South West
£28,652
£40,872
  Wales
£25,532
£33,592
  West Midlands
£25,740
£36,400
Example - Shows the approximate annual cost of residential care and nursing home care for different regions of the UK.


The cost of long term care can be capped or limited to a known amount by using an immediate needs annuity. This would protect the estate from capital erosion in the event of the individual living significantly beyond their life expectancy.

Immediate needs annuity

An immediate needs annuity policy can be purchased where an elderly relative is already in either residential care or a nursing care home or is about to be admitted. The annuity is paid directly to the care provider for the life of the individual and the Inland Revenue has agreed for this to be paid gross (no tax on the income).

A purchased life annuity is an alternative to an immediate needs annuity where the income is paid to the individual and is partially taxed. This is more suitable for people that are in good health and living in their own homes and are looking for a higher guaranteed rate of return from their capital than bank interest to supplement their income.

The Inland Revenue have stated that the amount payable by the annuity can only be equal to or less than the actual charge made by the care home, there cannot be a surplus to the estate, should there be a reduction in the home care fees charged or in the unlikely event the individual returns to their home to look after themselves.

The usual method of purchase is a single lump sum payment in exchange for an income to cover all or part of the costs of long term care for the life of the individual. It is also possible to have different options depending on the circumstances and assets where the immediate needs annuity can be deferred.

Other features that can be added to the annuity are escalation rates and capital protection. Escalation attached to an annuity means the income paid to the care home rises by a fixed percentage each year and protects the income against inflation.

Rates can be chosen between 1% and 8% of escalation. Capital protection allows the original capital to be protected in the event of the early death of the individual. The percentage of capital to be protected, up to usually 75%, would be returned to the estate less all income paid to the care home. This option would increase the capital cost of the immediate needs annuity.

The following immediate needs annuity table shows the capital required to provide an annual income of £12,000 (and assumes that the income will increase by 5% each year).

These examples are based on the average rates for a wide range of medical conditions for clients in each age band, and should be used as a guide only. For an indication of the annuity rate more specific to your or a relatives circumstances, medical conditions and ability to perform activities of daily living you should complete the immediate needs quote.

Please note that since December 2012, all annuity rates must now be quoted on a gender-neutral basis.


Average Capital Cost for Annuity
Age Capital
70 £164,000
75 £127,000
80 £94,000
85 £73,000
90 £56,000
Example - Shows the average capital cost of an annuity income of £12,000 pa with 5% escalation for different ages.


Inheritance Tax

An immediate care annuity can benefit the estate where there is a liability to inheritance tax (IHT). There is no IHT liable where the value of the estate is below an individuals personal threshold of £325,000, or if unused relief has been transferred from a spouse this could be as much as £650,000.

Inheritance tax is liable on the value of the estate above the threshold at a rate of 40%. Using an immediate care annuity to pay for the costs of a care home would remove this capital from the estate and immediately reduce the expected IHT liability.

For example, an estate worth £750,000 with a IHT threshold of £650,000 would have a expected IHT liability on death of 40% of £100,000 or £40,000.

Although self funding care for a relative would reduce the size of the estate and also the IHT liability, it is unknown how the estate would be further eroded in the future.

If the cost of a care annuity was £100,000 the value of the estate would reduce to the threshold of £650,000 removing the expected inheritance tax charge. At the same time the care annuity will cap the cost of this care and preserve the remaining estate for the beneficiaries.


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Deferred Annuity

If you wish to have the security of an Annuity but would prefer to reduce the amount of capital required for the premium, you could opt to purchase the Annuity on a deferred basis.

The Annuity is still purchased immediately, but the first payment to the care provider will not be made until after a specified number of years have elapsed (the ‘Deferred Period’).

The Deferred Period can be selected to last from between one to five years. The longer the Deferred Period, the less the Annuity will cost, but you will of course have to cover the cost of the care fees during the Deferred Period out of capital.

If you include the escalation feature for the Annuity, this feature will still be active during the Deferred Period. So, for example, if you purchase a Deferred Annuity for £2,000 per month including 5% escalation (with a 2 year Deferred Period) the amount of Annuity which becomes payable at the start of year 3 would be £2,205 per month, having benefited from 2 years of escalation.

The table below shows examples of the comparative premiums between Immediate and Deferred Annuities, for an Annuity of £12,000 per annum, escalating at 5% each year:


How a Deferred Annuity Compares
Age Capital required to purchase an
Immediate Annuity
Capital required to purchase a
Deferred Annuity
(deferred 2 years)
80 £94,000 £70,850
85 £73,000 £49,700
Example - Deferred annuity based on an annuity income of £12,000 pa with 5% escalation for different ages.


These examples are based on the average rates for a wide range of medical conditions for clients in each age band, and should be used as a guide only. For an indication of the annuity rate more specific to your or a relatives circumstances, medical conditions and ability to perform activities of daily living.

Medical conditions

Underwriters will use various approaches to underwrite an application for immediate needs cover and this includes their own experience of risks and possibly the Anderton Diagnosis Index. This index considers the medical condition suffered by the applicant as well as their ability to perform certain activities of daily living. The medical conditions most commonly found in applicants is shown in the following table, however, any illness or disease that reduces the life expectancy of the individual would be considered by the underwriters. It is important to request a quote specific to you or an elderly relatives medical condition as rates can differ significantly due to the health and life expectancy of the individual.

An immediate needs annuity is something that allows people to plan with some degree of certainty when they are potentially faced with an open ended amount of care being required. This sort of annuity is suited to just these situations and can certainly provide some peace of mind as well as a degree of certainty regards the financial situation of the applicant. Considering the activities of daily living is one of the ways in which these sorts of annuity can be assessed. Our website details all this, giving you all the information that you may need in order to assess the situation.

Common Medical Conditions
  Strokes
  Heart Disease
  Dementia Disease
  Heart Failure
  Alzeimer's Disease
  Cancer
  Diabetes
  Parkinson's Disease
Note - Rates can differ significantly due to the health of the individual . For an accurate quote specific to you or an elderly relatives medical condition(s), please submit a immediate needs quote


Activities of daily living

There are a number of activities of daily living that would be considered by the providers. The more of these that the individual cannot perform independently, the higher the annuity rate in general, as follows:

Communications
Such as speech, are they easy to understand, difficult to understand or unintelligible;
   
Orientation and behaviour
Is the person mentally alert, are they vague with lucid period or confused and disorientated;
   
Feeding and nutrition
Is the individual able to feed themselves, or do they need assistance or are unable to feed themselves.
   
Dressing
Can they dress themselves or do they need partial or full assistance;
   
Transfer
Such as moving from bed to chair without, or do they need some or full assistance;
   
Toilet use
Can they use the toilet unaided, or do they need some or full assistance;
   
Stairs
Can they walk up and down stairs unaided, or do they need some help or cannot manage stairs at all;
   
Continence
Is the individual continent, or do they have the occasional accident or are they incontinent.
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to ask questions
Ask for an impaired quote

Simply speak to our annuity expert Colin Thorburn if you need to discuss your options or would like us to take your details for the immediate needs quote, please contact us on:
020 8816 7501
Monday - Friday 9am-6pm

Calls from overseas:

+44 20 8816 7501
Important details
you need to know
Ask for an impaired quote

An immediate needs annuity can be used to cap the cost of long term care.

It is important to remember that care home fees increase in time often in excess of inflation.

Always add an escalation rate a care home is willing to agree, which could be lower than the actual rise in their fees in the future.
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