Immediate Need Annuities Explained
What are Immediate Need Annuities?
Immediate Need Annuities, also referred to as care fee annuities, are a very tax efficient and safe way of paying for care either at home or in a care home.
In return for paying just one single premium, an immediate annuity will provide a specified monthly income tax-free for however long care is required. The amount of income they provide is requested by you and for a little extra, you can have the income escalate by either a set percentage each year or by inflation to help meet escalating care fees.
An Immediate Needs Annuity can be purchased for anyone over 60 but only once they need care. They cannot be purchased as an insurance against possibly needing care in the future.
The income will be paid tax-free if it is paid to a Care Quality Commission registered care agency or care home but always belongs to the person in care so should they move care home or care agency it will move with them.
They are a very safe and secure investment as immediate need annuities are 100% protected by the Financial Services Compensation Scheme with no upper limit.
Why Use an Immediate Needs Annuity?
No one knows how long you, a parent, relative or friend may need care, but with care fees now costing anything between £750-£2,000 per week and fees increasing by 5 -10% p.a., simply by continuing to pay-as-you-go, within just a few years it will erode a significant, if not all of your money.
This is perhaps the main reason people consider an immediate care fees annuity because by paying just one single premium it can help provide an ongoing lifetime income that helps to cap the cost of care and to ensure any remaining money will be left for beneficiaries. To understand how, read our case study.
As Immediate need annuities are 100% protected by the Financial Services Compensation Scheme (FSCS) with no upper £120,000 limit unlike bank or building society accounts, they can also provide peace of mind that you, or your parent/relative should always be able to afford their preferred care and never have to accept just whatever care their Local Authority may be willing to fund.
The income paid by the annuity can also be paid directly to your care provider and providing any care home or care agency not only making it easier to pay the fees but providing the care provider is Care Quality Commissioned registered, and the income it provides doesn’t exceed the cost of care, the income is paid tax-free currently, although tax rules are liable to change.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Immediate Needs Annuity Key Facts
- Minimum age is 60. There is no maximum age.
- Suitable for care at home, or in a care home and are transferable between providers.
- Purchased with one single premium - No ongoing premiums will be required
- Premiums are based on individual health and care needs and the more health issues and need for care there is -the cheaper the premium will be.
- Income is paid for life.
- The income is TAX FREE providing it is paid to a CQC registered care provider and doesn't exceed the cost of care.
- You can pay a little extra and have the income increasing each year.
- You can request the income to increase each year and also opt for some premium protection in the event of death.
- Immediate Needs Annuities are fully covered by the FSCS scheme with no upper capital limit.
- Premiums are based on life insurers view of how long they may need to pay, to protect against losing too much money should care only be required for a shorter-period, you can also pay a little more to protect at least 25%/50%/75% of the premium is paid or refunded.
Who is eligible for an Immediate Care Needs Annuity?
Anyone who is over 60 and is already needing to pay for their own care, whether at home or in a care home situated in the UK, can buy an immediate needs annuity.
There is no upper age limit.
They can be taken out by either the person needing care, or any Power of Attorney.
How Do Immediate Need Annuities Work?
In return for paying just one single premium, you receive an immediate guaranteed income for the rest of the person needing care’s life to pay help pay for their care,
They can be purchased to pay for care either in your own home or received in a care home.
Providing the income is paid directly to a Care Quality Commission (CQC) registered care provider, it is tax-free which helps to make the premium cheaper.
Will The Income Paid By An Immediate Needs Annuity Increase?
Immediate Need Annuities can either provide a level income, or if you pay a little more, an escalating income.
Escalation can be either linked to Inflation, or have fixed annual increases with you being able to choose anything between 1– 8% or in some cases 10% p.a.
With an escalating annuity it is only the “income” that increases not the premium. The premium is a guaranteed single premium so you will never be asked to pay anymore later. This helps cap the lifetime cost of care.
To read more about escalation and to see whether escalation may be a good idea see escalation.
What happens in the Event of Death?
All Immediate Needs Annuity premiums are calculated based on underwritten life expectancies.
Should death occur much earlier than calculated, you can lose a significant sum.
If you wish to minimise this risk, you can either:
- Pay a little extra and buy a capital protected annuity which can ensure 25%-75% of the premium will always be paid either in payments made to date of death, or any outstanding balance being returned to the estate.
Or you can opt for
- A Deferred Annuity where you request benefits not to commence for a period (typically 1,2 or 3 years) in return for a cheaper premium which would still be paid now.
Although you would still be responsible for paying the fees until the income commences, this can help reduce any loss in the event of early death as the reduced premium paid for a Deferred Annuity together with any fees paid could still be less than an equivalent immediate annuity without capital protection. Discover more about deferred annuities.
Do You Need To Buy An Immediate Needs Annuity To Cover The Full Cost Of Care?
Not unless you want to.
As any self-funder will still receive their pensions and any Attendance Allowance or PIP even if they go into a care home, to reduce the cost of any annuity and any potential loss in the event of early death, we would suggest you only consider buying one which covers just the shortfall.
To calculate this shortfall and help check you are claiming all state benefits, you may wish to use our care fees shortfall calculator.
How Safe Are Immediate Need Annuities?
Immediate Needs Annuities are very safe. In fact they could be considered much safer than any other investment or deposit account in fact.
In the very unlikely event that any annuity provider becomes unable to meet their liabilities, these annuities are protected 100% by the Financial Services Compensation Scheme with no upper limit, unlike most other investments.
Are Immediate Needs Annuity a good idea?
This is question we are often asked and the answer will very much depend on how much an annuity might cost, how long you feel care may be required and how important it is to provide peace of mind that you can continue to afford the care you want.
By paying just one premium and receiving a guaranteed income for life, an immediate needs annuity will help cap the cost and preserve more of your savings.
As the premium is primarily based on how long insurers feel they may need to pay, the longer the person continues receiving care, the better value they become.
Unfortunately, only hindsight will tell whether buying an annuity will have proved to be a good investment, but it will certainly provide continuity of income and help ensure you should never run out of money or have to settle for just whatever care your local authority may be able to provide. You also benefit from the income being tax-free all the time it is paid to Care Quality Commission registered care home or care agency
Only you can decide but first you need to know how much an annuity might cost, let us get your free quotes for you.
Who Are Immediate Need Annuities Most Suited To?
Immediate Need Annuities will probably be best suited to those who:
- Need to pay for their own fees and are over 60
- Are already in need of care either at home or in a care home.
- Place greater emphasis on ensuring quality of care than simply focusing solely on how much money may be left in the event of early death.
- Want to ensure younger family members will not be required to help fund any fees in the future.
- Want to cap the cost of cap and help protect any remaining money remains for inheritances.
You can discover more about the relative pros and cons of an immediate needs annuity by visiting advantages and disadvantages.
Immediate Need Annuity Rates? - How are Immediate Annuity premiums priced?
All Care Fee Annuities are individually priced, based on:
- Age
- Medical history and need for care.
- The annual benefit amount requested.
- Whether you want benefits to increase each year and want any premium protection.
There is no set rate.
How Can You Find Out How Much An Immediate Needs Annuity Will Cost?
Premiums are unique, personalised and calculated based not just on the amount of income required, but more so their age and health and also whether you want the income to increase each year and/or want any premium protection so that in the event of any untimely death you could receive some refund. They also vary between insurers, so it pays to obtain quotes from all providers.
Search the Entire Immediate Needs Market Easily
As you can’t change or cancel an annuity once purchased, (apart from in the first 30 days statutory cancellation period) and you may even not need to pay for your own care, insurers will not provide quotes directly to families and insist on your receiving professional advice from an experienced care fee adviser like as ourselves.
Being Independent Financial Advisers we will gladly obtain all possible annuity quotes for you – free of charge and without obligation, but as insurers will require medical details, we can’t give you an instant quote.
However, should you just like an immediate feel for just how much an immediate needs annuity might cost, providing the person needing care is 80 or over, you can get an instant idea buy trying our Immediate Needs Annuity estimator.
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