Deferred Annuities

The term Immediate Needs Annuity refers more to the fact that you must have an immediate need for care.

It doesn’t mean benefits have to commence immediately. Indeed, it is possible to forego receiving any income for an initial period, typically 1-5 years and these are called Deferred Annuities.

Once your selected deferred period ceases, Deferred Annuities will pay the same guaranteed income for the rest of the person life as one that commences immediately, but because you have opted to delay receiving benefit, the premium will be cheaper.

The premium still needs to be paid at outset, not when the income starts. This means in the event of the person needing care unfortunately dying before the income commences, you would lose all of the money and with these annuities you can’t buy any premium protection.

So why consider a Deferred Annuity?

Deferred annuities can be ideal for those who feel a parent or relative may not need care for too long, can afford to pay their fees in the short-term, but just want some re-assurance that should care turn out to be longer than expected care fees would be paid by the annuity.

They can also help save money when compared to a level immediate commencing annuity with no premium protection if death occurred sooner than expected. How this can happen is perhaps better demonstrated by the following example:

Example:

If a level immediate commencing annuity (with no premium protection) providing £25,000 p.a income cost £100,000 to buy and 2 year deferred annuity for the same benefit (£25,000 p.a.) only cost £50,000 and death occurred suddenly after 9 months, whilst with the deferred annuity you would have lost the premium paid of £50,000 and have had no benefit and would still have had to pay care fees in the 9 months totalling some £18,750 (£25,000p.a x 9 months) making a total outlay of £68,750.

In contrast if you had purchased the immediate annuity costing £100,000 and benefitted from receiving £18,750 income paid to and therefore not had to pay the care fees, you would have lost £81,250 (£100,000 – £18,750 income received).

The overall net cost of a deferred annuity in this example would have been £68,70 compared to £81,250 for the immediate commencing annuity with no premium protection.