Going into long term care may or may not be something that you or your family have thought about. But almost half a million people in the UK alone live in care homes and usually this care needs to be paid for. So, it is something to seriously consider.
An immediate needs annuity can help with these costs. They guarantee to pay out a regular income for the rest of your life. The amount of income you receive may be higher than for other types of annuity, as your state of health will be taken into account. You can buy them with savings, or from the proceeds of selling your house, you may have inherited some money or with the tax free cash from your pension. Your family can even take one out to pay for your care.
If you are already living in a care home, or are about to move into one you can arrange for the payments to be paid straight to your care provider, completely tax-free. Or the money can be paid directly to you, but this could mean that you will have to pay income tax on part of it. Tax rules may change in the future.
Pros
- The income paid will be free from income tax if paid direct to your care provider. This is based on current tax rules for 2007/08 and may change in the future.
- You may be able to top up your payments if your circumstances change.
- Immediate needs annuities promise to pay a regular income for life.
- You can customise your annuity to suit you:
- You can choose to protect your income against inflation.
- You can choose to have an income that stays the same, or one that starts at a lower amount but increases each year.
- You can choose for some of the money you paid in to be paid back to your estate, if you die within a set period of time.
Cons
- Your annuity is for life. Once you’ve bought it - you can’t cash it in, swap it for something else or alter your annuity options.
- You could die before getting your money’s worth from your annuity. There is no payment made from your annuity when you die, unless you have selected certain options.
- Unless you choose otherwise your income is not automatically protected against the effects of inflation.
If you are already living in a care home, are about to move into one or a member of your family is affected by this, and you are worried about how you will pay for this over the longer term, an immediate needs annuity could provide you with the security and peace of mind you need.
You can buy an immediate needs annuity from an insurance company or through a financial adviser. Before you part with your money, carefully consider the options available on an annuity. Make your choice based on what you need now, as well as what you’re likely to need in the future.
If you need more help choosing your annuity you could speak to an insurance company who may refer you to their advisers. You need to remember not all providers offer advice and if they do, they may only be able to give information about their own products. If you want advice about the whole of the market, you’ll need to speak to an independent financial adviser.
Do your research - decide whether an immediate needs annuity is right for you by looking at all the available options for paying for care and considering the pros and cons of each.
Shop around - you could get more from your income by shopping around for the best deal on the annuity market.
Start early – take your time to consider the options available on an annuity, choosing one that best suits your immediate and long-term needs. Annuities rates can change, if you buy now you may get a better rate than if you waited. However this could work the other way around as well, you may get a better rate by waiting. Remember, once you buy an annuity your money is locked in.
Check out and compare – the range of annuities and options. Whatever your circumstances, you can find the one which best suits you.
Remember you’re in control – you have the final decision on all the choices you make.
Don’t be afraid to ask – if you have any questions about annuities generally or about a specific product, make sure you get advice before making a decision.
