Care Fees Annuities
Care fees annuities are designed for people who need, or will soon require, residential care. These policies are designed to cover the on-going costs of long term care when the annuitant requires full time residential or nursing home care. As long as the income generated from the Care Annuity is paid direct to a registered care provider, the proceeds are not subject to income tax.
Sometimes called Immediate Needs Annuities, these policies work on the basis of the annuitant having a reduced life expectancy because of their inability to look after themselves without assistance - hence the amount of income received is likely to be much more generous than for other types of annuities, since life expectancy at the time of entering a nursing home is likely to be less than for a healthy life.
Annuity payments are made by the Care Fees Annuity provider for the provision of an individual's long term care and will be paid for as long as they live. This can give the annuitant and their beneficiaries piece of mind knowing that the cost of their care will continue to be met and the remaining value of the annuitant's Estate will be preserved, even if they continue to live for a very long time.
Care Fees Annuities are different to conventional annuities, bought from a pension, in that the source of the funds to buy the annuity is from a single lump sum premium, paid by the annuitant or the annuitant's Estate or sometimes by the beneficiaries.
People using care fees annuities to fund the costs of long term care are treated as being not liable to tax on the payments made by insurance companies under these annuity contracts, provided payments are paid straight to the provider of care who must be a care provider registered with the Care Quality Commission. If the income from the annuity is paid directly to the annuitant it could be liable to income tax.
Applications for care fees annuities go through a process of medical underwriting, where medical risk is assessed. This involves assessing the applicant's medical records and their ability to perform Activities of Daily Living (ADL's). Examples of ADL's include washing, dressing, mobility, feeding, or using the toilet unassisted.
To request a quote, see our section: care fee annuity quotes.
We charge 2% of the capital value of the Care Fee Annuity.
Features of Care Fees Annuities include:
- Payments can be indexed to protect future income against inflation. This can be with the Retail Prices Index (RPI) or at a fixed percentage per annum (ie 3% each year).
- You can choose for some of the money you paid in to be paid back to your Estate, if you die within a set period of time. This can be done by selecting "Capital Protection" (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 calculating Inheritance Tax. The remainder of the Estate is then protected from the eroding impact of longevity and the associated on-going care costs this would involve.
The Process of Applying for a Care Fees Annuity
When it comes to funding for care, there are a number of steps you need to take:
- Contact your Local Authority for a Needs Assessment. This will allow the identification of the level of care required. It could be that care needs can still be met at home- with assistance from the council being limited to the provision of "meals on wheels" or domestic help. Equally it could be that the need is primarily a health need where 24 hour care should be provided by medically trained staff- in which case care should be provided by the National Health Service.
- If the Needs Assessment concludes that medical care is not needed, the next step is for a Financial Assessment to be carried out by the local council. If you have assets of, currently, £23,250 or more in England and Northern Ireland, then the person requiring the care will have to pay all their own bills. In calculating this amount, the council will take into account the value of the home, savings, and personal possessions. They will also look to identify recent gifts made to relatives in a deliberate attempt to qualify for State funding- this is known as "deprivation of assets". Only if you have assets of less than £14,000 will the council pay the full cost of care. If you have more than £23,250 in assets, you will be given a list of homes and expected to fund the costs with no help from the local authority. If a surviving spouse continues to live in the property, it can be disregarded from the means test and need not necessarily be sold to pay for care.
- If you do not qualify for NHS Care or financial assistance for social care, you have to consider how to fund the costs of on-going care. The costs vary considerably- depending on location and quality of home.
- If the nature of the Estate and circumstances permit, then obtaining an indicative quote from us is the next step and can assist in identifying and shortfalls which will have to be addressed. These quotes are subject to further underwriting but at least give an approximate figure of the income which can be targeted to pay for the care.
- If either you or a relative is going into care, it is usually best to set up a Lasting Power of Attorney (LPA). There are two very different types of LPA- "property and affairs" and "personal welfare". An LPA only becomes effective once it has been registered with the Office of the Public Guardian. Sometimes referred to as "Lifetime Wills", LPA's can allow relatives or trusted friends to make financial and welfare decisions on your behalf, rather than these decisions being made for you by social services.
- Decide on an appropriate home - organisations such as the Care Quality Commission produce reports on care homes and offers independent advice on the whole process of finding the most suitable home.
- Make sure you claim all your relevant State Benefits. Attendance Allowance is available for anyone over 65 who needs care. If care is provided by a Nursing Home, an NHS Nursing Care Contribution of £101 per week can be paid direct to the home. For more on benefits, see Care Fee Annuities State Benefits.
- If, after receiving an "indicative quote" from us, you are interested in proceeding, we will send you forms to allow a company called Medicals Direct to request a medical history report from the Doctor of the person needing care, and also a ‘Care Managers Report’ if the person is already in a Care Home. Once the medical reports have been received, we will be able to obtain the premiums from the Life Offices, who will make you an offer.
- Complete our Care Fees Funding Review form which helps ensure that a Care Fees Annuity is suitable for your needs. We will then issue you with a suitability report containing our recommendations and if a Care Fee Annuity is not an appropriate product for your needs we will make this clear to you and the case will not proceed.
- Decide which annuity provider to use.
- Complete the application forms. We will assist and guide you through this part with no pressure to proceed if you do not wish to.