As a financial planner I found myself watching the spring budget on 15^th March 2023 very closely. There had been a lot of suggestions regarding changes to pension legislation.  However, I wasn’t too surprised to see no mention of the Social Care reforms that were deferred in the 2022 Autumn Statement.

During the coming week I am going to be presenting to the members of the National Care Association who represent small and medium sized Care providers. I am going to be talking about Care Fees Annuities (CFA) to raise the awareness that they even exist.

According to the well-respected Laing and Buisson Care Homes for Older People 31^st Edition 2021 there are in the region of 130,000 individuals going in to care each year. Of these about 58,000 or 45% are self-funders. This means they have means tested assets in excess of £23,250 currently for England.

In stark contrast, information collated from the four CFA providers tells us that just 6% (3,500) of those self-funders entering care requested a quote for a CFA in 2021.  

I accept that CFA’s will not be suitable for all however, I suspect that there are a good number of those families currently self-funding who can benefit, or would have benefitted, from an annuity but just didn’t know they existed. Whilst I am not surprised by the figures, they do strike me as extraordinarily low numbers seeking guarantees for care fees payments. So I want to raise awareness of this, as those who elect to purchase a CFA do so for the peace of mind they receive from having a guaranteed income for life with which to pay care fees.

As a SOLLA Accredited adviser I receive a good number of enquiries from people and families seeking help with regards to care fees planning. One of the first things I seek to understand is what knowledge people have of their options. Even when a referral has come via a care home the answer I get rarely includes CFAs.

So what exactly is a Care Fees Annuity (aka Immediate Needs Annuity, Immediate Care Plan)?

Put simply a Care Fees Annuity provides a guaranteed monthly income payment for life to help pay for care fees in exchange for a single premium. The monthly income can be for the entire amount of the care fees or alternatively might be used to fund the gap between current income levels from pensions and savings and the cost of care.

When purchasing a CFA there are also a number of options you can choose from. These include the option to have the payments increase annually to offset the effects of inflation and rising care fees or you may want to keep them level as this will be a cheaper upfront cost. There are also options to protect the initial capital outlay in the event of early death as well as being able to reduce the premium by opting for a deferred period.

To aid your understanding I have listed some of the advantages and disadvantages.

Advantages

• Peace of mind that a guaranteed payment will be paid for life towards care costs
• Under current legislation there is no tax to pay on the payments if they're paid to a UK registered care provider. However, the rules governing tax may change in the future and could affect your payments. 
• Purchasing an income for life with a one off premium can help to protect the remainder of the estate from the longer term risk and liability of erosion of capital
• Flexibility around who the payment is paid to if you change care providers or no longer need care.

Disadvantages

• You could get back less than you paid in.
• If you no longer require care, or become eligible for NHS funding, you cannot cancel your immediate needs annuity. However, it can instead be paid directly to you, but may be subject to income tax.
• Receiving payments from a Care Fees Annuity may affect your ability to claim means-tested state benefits.

Once you establish a basic understanding of CFAs, without doubt the main concern about buying one is dying too soon and not receiving perceived good value.

It is important to understand that there is no ‘risk’ free option. It just depends on which risk/s you wish to expose yourself to. Will it be the risk of dying too soon or perhaps the risk of living too long.

And of course how you measure value is subjective. The fact that security is a feeling rather than a number highlights this very point. What is value for one might not be value for another, which is why seeking advice from an Independent and SOLLA Accredited adviser can be so important.

If you or someone you know is either in care or may need care in the future please feel free to get in touch for an initial discussion at no cost to you to learn more and get the right outcomes and options for you or your loved one.