What are Care Fees Annuities?

Care Fees Annuities (also called an Immediate Needs Annuities) are for those retirees that require long term residential care. Nursing care and residential care can be expensive and the cost of this kind of care is expected to rise in the future. A Care Fees annuity is designed to help cover these on going costs. As the need for care is immediate, the individual cannot cover the costs using pre-funded long term care insurance which is why they may instead choose this type of annuity. Care fees annuities are offered on the basis that the person taking one will have a much lower life expectancy compared to a healthy person, as they are in need of long term care. Thus the rate offered will be substantially higher compared with a conventional annuity.

As will all annuities, payments will be made for the rest of an individual’s life which gives reassurance to them and their loved ones that they will always receive a contribution towards the cost of long-term care. It is still the case that anyone with assets worth over £23,500 is liable to for entire cost of their care, something that looks unlikely to change in the short term as primary legislation was omitted from the latest Queens’ speech. Unlike conventional annuities the annuity is bought from one lump sum premium and the income is paid directly to the care provider. This means it is not taxed like regular pension income. Care Fee annuities are underwritten based on the medical condition of the individual at the time of application. This will help the annuity provider to determine the probable life expectancy and as a consequence the amount of annual income they are entitled to. One thing an insurer will look at is the ability of the individual to perform routine tasks such as dressing themselves, washing, walking eating and using the lavatory.

As with other annuities you have the option to build in escalations either fixed or RPI linked. You can opt for some of the money to go back into the person’s Estate should they die within a specific period, known as Capital Protection. One benefit of opting for a care fees annuity is that it can reduce the value of one’s estate and thus reduce the liability for IHT.

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