Speak to an expert
Michelle is an award-winning chartered financial planner who holds the designation 'Fellow of the PFS' demonstrating her commitment to maintaining the highest standards of knowledge, ethical conduct, and professional practice. Michelle is also an accredited member of the Society of Later Life advisers. Michelle offers a fully personalised service tailored to each clients individual needs and goals, using an approach that was recognised and honoured by the Women in Financial Advice awards in 2021. Clients working with Michelle can expect a high level of professionalism, integrity and a lasting relationship built on trust and open communication
Michelle Boakes
Chartered Financial Planner
Body
So what is an immediate needs annuity plan?
In the simplest form, it is a policy that pays a guaranteed income for the purpose of paying care fees. The purchaser exchanges a lump sum for income from the provider. That income can either be paid to yourself or it can be paid to a registered provider of care.
Is an immediate annuity right for me?
It’s not always suitable, and there are some occasions where an immediate needs annuity wouldn’t be appropriate. For example, you might only need temporary care for a short amount of time, or maybe you’re not even in need of care right now.
If funding is available from the NHS, that would replace the immediate needs annuity. So everybody should seek advice about whether an immediate needs annuity is right for their specific circumstances.
How do I purchase an immediate annuity?
You can go direct to an insurance provider who offers immediate needs annuities – which are sometimes called care fee plans or care fee annuities. Or you can go through a financial advisor like us here at Verve.
There are definite benefits of going through a financial advisor over going directly to the insurance providers. We will shop around and make sure that the annuity you’re purchasing is tailored to your specific needs and preferences.
Any financial advisor you speak to about immediate needs annuities needs to have a specialist qualification in care fee planning. They should have that displayed on their website or at least make it clear that they are suitably qualified.
Free Introductory Meeting
We offer a complimentary introduction meeting to understand your existing plans and your financial objectives so that we can offer you the right advice and service that meets your objectives and your preferences.
How do most people pay for this annuity and what other costs are involved?
A lot of the time when you hear annuity you’re thinking about pension annuities because they’re the most common ones. The difference is pension annuities are purchased using pension savings only and they’re designed to provide an income throughout someone’s retirement.
Whereas the care annuity, that can be purchased using funds from any source. I would say most people tend to use cash savings that they’ve got in their bank account, that they’ve built up over time. Some people would use investments that they’ve held on to if it’s in their best interest to buy it with those sources as well.
The cost of the annuity is dependent on individual circumstances. Every single annuity is bespoke to an individual, so we will say how much income that someone needs in order to pay their care home fees and also any other options that they’d like included within their annuity.
The care annuity provider will, based on that person’s health, age, circumstances and income required, all of those things, they will tell us how much we need to give them to enable them to pay us that income for the rest of our clients lifetime.
It’s a backwards way of looking at things. Most of the time you would say I’ve got this much money and and then we’ll tell you how much income you can get but we do it the other way around for care fees. We say how much we need this income and how much we should give you to a provider.
Can you lose your money in an annuity?
Once you’ve paid the lump sum it is gone. You are exchanging that lump sum for an income, and that the only way of protecting the money you pay in is by adding something called Premium Protection. That’s a way of guaranteeing that you get a minimum return from the policy.
Do you pay tax on immediate annuities?
One of the key benefits of having it paid directly to a registered care provider is that the income is paid free of tax. But if you’re having the income paid to yourself then it is taxable income – but potentially not all of it would be taxable.
The best thing to do is get tailored advice for your own needs by going through a financial advisor.
Our personalised evidence-based recommendations that build on your current plans are achieved using robust research. We investigate different financial scenarios so that you can be confident in achieving your objectives
What are the advantages of immediate needs annuity?
The key benefit of the immediate need annuity is the guaranteed income. You’re exchanging a fixed amount for a guaranteed income for the rest of your life – no matter how long that will be. Exchanging that lump sum also essentially reduces the care cost because it caps those costs.
With care there’s often no knowing how long people are going to live and need that care for. We also don’t know how much it might increase by – so an annuity gives you the benefit of knowing what your care costs are going to be at the earliest point.
We’ve already mentioned that the income is free of tax. Another tax-related benefit is that if you’ve taken a lump sum out of your estate, that can help with inheritance tax as well if that’s important to you.
You can add escalation to the policy, so that the income increases in line with inflation if that’s available, or with a set amount of interest. Care fees often go up every year, so you can plan to hopefully keep pace with them.
What are the disadvantages of immediate needs annuity?
Following on from the last point, one of the risks is that if the escalation rate you’ve chosen on your annuity isn’t as high as the increase in fees, you might have to supplement the annuity payment to the care provider.
Also, the lump sum you pay at the outset can be quite a large sum. It depends on your individual circumstances as to whether that is a reasonable, affordable amount. Remember too that if your circumstances change, the annuity can’t be cancelled. After the initial 30 day period you cannot get your money back.
If, for example, you’ve set the plan up and you no longer need care, the annuity is still going to pay that income. If you don’t need it, you may end up paying more tax than you’d expected.
I mentioned earlier that you can add premium protection to your policy. If you do that, and capital is paid back to your estate under that premium protection, that will be eligible for inheritance tax. So it might not be tax efficient – and it could affect some of your means tested state benefits as well. It’s really important to get advice about whether these policies are right for you or not.
Can I buy an immediate annuity at age 45?
Most providers tend to restrict it to over 60s. Not many companies offer the immediate needs annuity at the moment and the ones that do restrict it to 60+. Another thing that’s really important to bear in mind with an immediate needs annuity is that It is only available to those with an immediate care need. They must need long-term care at the point of application.
Get in touch
When we tell you about a fee, you will always receive a clear explanation of: The total fee, the advice service it relates to, how it's been calculated, when you need to pay it and your payment options.
How can I find out more?
If an immediate needs annuity is potentially the right option for you, it’s really important to work with a specialist financial advisor that holds the relevant qualifications. We can help you explore all the different options available on an immediate needs annuity. We’ll make sure it’s tailored to your specific circumstances.
We can also look at all of the options of how to pay for care, as there are about nine different ways that you can pay the fees. We’ll explain which of those are applicable to your situation. One of our jobs in the first instance is to look at whether you could potentially qualify for NHS funded care.
If you are a self-funder, we consider the immediate needs annuity option along with various different routes. That way you’ve got peace of mind that the way that you’ll pay for care is the right way for you. Then, of course, we set it all up for you. We take away all that paperwork and stress of dealing with providers and filling in forms. We do all of that for you.
Every episode is a gateway to new knowledge and endless inspiration!
Related podcasts
ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
