One of the big problems with paying care fees is that nobody knows how long someone’s going to live. It’s a very difficult position to be in when you’re having to look at how much money is available, consider whether this will last the lifetime of the person needing care.

Especially if it’s someone you love or, indeed, if you have responsibility for their finances if you’re an attorney or deputy. No one likes to have to balance their emotional wish for someone to live as long as possible against the concern that their money might run out. The situation is often made worse by the need to make these decisions in a crisis, for example, when someone suddenly becomes very unwell. Financial services have an option which is called an immediate needs annuity. It’s, the only way to guarantee that the money will not run out during the person’s lifetime. How it works is that in return for a lump sum payment, the plan will pay out income, usually monthly, for the lifetime of the person who needs care. Each case is looked at individually and it’s medically underwritten so the lump sum required is specific to the individual and it differs depending upon their health. To understand how these work and if they might be right for you in your situation it’s very important to seek specialist advice from a later life financial adviser. These plans are not for everyone, not because the plan isn’t right but because in your case it may not be the right solution for you and there may be better options depending on your circumstances. The important thing is to get the right advice and make sure you feel comfortable with the risks and the options, all the options before proceeding. Because, ultimately, only with good advice about an immediate needs annuity from a specialist adviser to help you think this through, will you know if this is the option that will give you peace of mind.

So I’d heard about annuities and care fees plans; and I had heard about them years ago and I don’t know how but I had. But they, you can only apply for those when a person is in care; so that, sort of prior to mum and dad going into care there was no point in looking into it. but when I went to the care home, the, the one that we’re in now, they gave me leaflets about all of that and gave me a contact and said this woman was very good and very useful and the care home were very good at trying to help in that sense. So I contacted this lady; and I’m trying to think of the name of [laughs] the company; I can tell you afterwards. Oh I can’t, can’t think what they are called. But they are literally a broker because you can only do it through brokers, and there are only two or three companies in the UK that do it [laughs].

There you go. So you’re quite limited anyway. I knew it was an expensive option but anyway I approached this lady and she was really, really helpful, really helpful, and gave me lots of information to read before I decided whether to go that route or not.

So we took the decision, me and my two siblings, that we would look into getting an annuity for my dad, and so we, we were very lucky, we have a friend, and this is her area of expertise, and she put us onto a local pensions advisor. And so luckily when my, before my dad’s dementia had really kicked in we realised that it was important to get a Power of Attorney in place, both financial and health, because we were going to have some serious decisions to make that he wouldn’t be able to, you know, sensibly make. So luckily we got that all in place; it was quite a long process… but we did it; and so actually to set up the immediate lifetime care plan, or annuity, it was really essential that we had the Power of Attorney so that was one hurdle that we’d already crossed, and when we sat down with the financial advisor; there are only two companies that offer this annuity, who were Just and Aviva. I have a feeling that just may not do it anymore, although I’m not sure about that. So it took quite a long time to fill in all the information for him, we had to. I, it took several weeks of to-ing and fro-ing, and then we got to; so how it worked was my dad would have to pay a large lump sum which would then cover a portion of his care home fees, because he has; so we worked out that half of his monthly care home fee is covered by his pension, the various pensions that he set up in his lifetime, so he needed to cover the other half.

And also the fact that like my father has a very good pension plus the government pension, plus Attendance Allowance, and my mum has private pension but it’s tiny compared to my father’s her government pension is less than my father gets her Attendance Allowance is the same. But her care fees are exactly the same so there’s a huge imbalance of how much you need for each person. So when we worked, they, they worked the figures out literally on there’s my father, how much, they work out how much pension he gets a month, his total income, then how much the care fees are, and how much of that you want to get a plan for, so, and they do the same for mum. So obviously because mum’s pension was far less than dad’s mum needed a bigger care fees plan than dad did, but what we decided to do was, because mum will receive half of dad’s pension [laughs] if he dies first, was to balance, equalise it out so that they more or less get the same each month from their plan to pay for their fees, but of course because of ages, illnesses, everything else, the costings were slightly different. So it, it, it’s [laughs] honestly; and then you’ve got to take into account if you want to index-link it, if you want to defer it yeah, there, there’s just so many permutations of what to do [laughter] so.

It was the GP or, I don’t believe, and I think I would know, I don’t believe there was ever any independent medical assessment done, I think they wrote to the GP and; because I remember seeing, the GP shared a copy of the letter that he wrote with my mother, so I saw it which again described the health conditions of, and the projected likely length of life and as far as I’m aware that’s the only medical report that they provided. I mean she didn’t have an identified terminal condition; I suspect if you did then they might well seek further reports, because that would affect, obviously, very much the arrangement, the insurance policy, but it didn’t apply in my mother’s case.

And one thing the broker said to me was, “If you want to go back to the care home and say to them, look, you’ve, the, you know, you’ve taken out this care fees plan, so they are going to be guaranteed X amount of money for, £3,000 a month, for the rest of that person’s life.” I’ve index-linked it at five percent a year, so every anniversary it increases by five percent; I haven’t told the care home that, because the care home and the broker they don’t talk. But I went to the care home and I said, “Look, I’ve got this policy, it’s going to pay out every month for the rest of mum and dad’s life, will you do a deal with me to cap the yearly increase to say three percent or four percent?” And they initially turned that down, but I went back to them again and said, “Look, I don’t agree with the arguments you’ve put forward for this and I’d like you to seriously think about this because you are getting this amount every month,” and I just reiterated it all. And they came back and they agreed to cap the increase at four percent a year for four years; so I gained one percent a year [laughs]. But that, you know, that wasn’t the point. But I’ve managed as well to make sure that it, that, you know; so the, this year was the one year anniversary and [name of insurer] just automatically put it up and the care home will automatically put it up as well, but it will be covered, so. But I, you know, I did, on one of my spreadsheets, no index-linking, and it made a huge difference to the…

Because you would have to be contributing to that…?

I’d have to contribute that increase every year, yeah, for both of them. So it did make quite a difference, and over a long term it probably narrowed, probably took at least a year off of the fees if I’d have been paying it myself, you know, it shortened the time by about a year. So yeah, I felt index-linking was quite important.

Well what we, what we thought was that this money was my dad, it’s my dad’s money obviously, and the only, he has no, he has nothing to spend it on other than his care, so we were totally happy for all of his money to be spent on his care, which would be better for him in that it would mean that the annuity would need to fund less of his total care package. But we had quite we had quite a specific, we, yeah, it was a very specific amount we wanted to cover, so we had a, we had that goal in mind when we set it up; then there wasn’t a lot of, well you could do this or you could do that, we knew exactly what we wanted. Because I think our, as I said before, our biggest fear was that we wouldn’t be able to afford to keep him at the care home if his money ran out. The care home were quite helpful explaining that that might not necessarily happen, that the mechanism might be that they would have to go to the local council to try and get them to help fund it, and this is often what happens, but it can be quite a long process and it can be quite what was the word they used? You know, it can get a bit heated; and actually we didn’t, we just didn’t fancy that, we didn’t want to get into a situation where we were sort of having to haggle over dad’s you know, staying in his care home, basically, so yeah.

And for us the great advantage was that it took about a third of her estate to pay for the annuity but it guaranteed the continued payment for as long as she needed it and two thirds was then protected for the children to inherit and so it gave her the peace of mind that she wanted. The break-even point on the policy would have been 4 years and she didn’t live that long, she lived 18 months, but as far as I’m concerned, and I know she would say the same if she, it was absolutely the right thing to do for us as a family, because it gave her peace of mind, it gave me peace of mind because I wasn’t thinking, you know, what am I going to do…

What happens next, yeah.

…you know, if she happens to be somebody who lives for a very long time and, you know, where would I find that money? So it was, that gave us back a bit, if you like, the taking away a stress and thinking about money and just enjoying the time; and she was in an extremely comfortable home, she had all the services that she wanted and whilst, you know, it would have been nice if she’d lived a bit longer it did exactly what we wanted it to do and I was always very grateful for it [care plan] and the family I’d talked to my siblings about it, they were quite happy to leave it to me and my mother to decide but they knew full well what the deal was and in a sense that they would if you like, lose a bit of their inheritance. but it was fine, you know, that was, that was the deal and it worked for all of us.

And as, peace of mind, especially for your mum?

Oh it was huge, it was huge. You, you could see that she, and I could just tell her every time, “The money will never run out, you know, it doesn’t matter if you’re here when you’re a hundred and ten” [laughs]. You, you know I mean it was never likely to happen but, you know, the, the point was that she could be assured that she would be, she was paying her own way, because that’s how she felt about it.

My brothers and I worked on; we had two options really. We could not take a care fees plan out and we could just drip feed the money if they lived longer than; oh I did so many spreadsheets it’s untrue. But if they lived, they could live for about ten or eleven years but we would use every single penny up that they had, because I mean the care fees are £132,000 a year for the pair of them or we could spend this pot of cash that they had, which guaranteed their fees, because obviously their pensions would keep paying while they’re alive, the fee, the plan would guarantee to pay their fees forever, till they died, and it meant that the house was completely not needed, because obviously that’s our inheritance [laughs] which sounds really selfish, but mum and dad would be horrified if we spent that money on care fees plans, because they’ve always said, and their wills reflect, “that is for you three children”.

I think having purchased the annuities seems to have sort of taken away a lot of the uncertainties around all this for you?

Yeah, it was a huge relief, because I was paying out, you know, 11 and a half grand a month and seeing their cash diminishing, even though they had a lot of it [laughs] but, you, you know, each week, each month I could see it diminishing, thinking oh my God, you know, two years there won’t be this cash or, you know. So it was, yeah, it was an, a pressure I didn’t need, on top of everything else that mum and dad, you know, present…

Yeah, yeah it’s a difficult time.

…so it, you know, I know that every month they’re going to get their pension, every month they’re going to get their care fees plan, and all of that covers the care fees. So even if anything happens to me that will still carry on, you know, that’s, yeah, it is a huge relief.

But it, all the contact initially, certainly, and very large majority of it was on the phone and it was just, came across as somebody who, he really knew he his stuff and he had dealt with many different scenarios and could describe situations we might want to take into account. And, you know, in the early days when he was talking about, “Well this would be the sort of cost but, you know, have you considered, has you, have you discussed it with your siblings of what, how you would feel if your mother died quite soon on?” And so in fact he was getting me to make sure I’d thought through the consequences and was it the right thing to do and; so I felt very supported in the process and the information he gave me, I mean I’ve still got the report I had a quick look at it this morning to remind myself, you know, set out the options and I didn’t then or subsequently ever come across something that I thought oh I wish I’d known that, I would have done it differently. So I would have no hesitation in recommending them to other people. I, but I had, I suppose I did have the slight advantage that my friend had already told me about it, so I didn’t sort of ring cold and then get a real shock when I knew how much they were talking about because I’d already had that preliminary conversation. But in my dealings with them I thought they were excellent.

We looked at whether to use an annuity, having a banking background. We didn’t expect mum to live as long as she has so felt that perhaps that wasn’t the right choice however, on reflection, perhaps it would have been the right choice, but who knows? It’s, it’s hard to know how long they’re going to live and what’s the right way, the right way to go about it. So that’s a really hard decision to make as to whether you do take out something to protect the funds that you’ve got. Very hard.

I’m not quite sure what you mean, but we looked at things like annuities, you mean, and that kind of thing, yes, and we decided that it just wasn’t worth it, which we’re glad about now, because, yeah, I’m glad about, it, because it certainly wouldn’t have been [laughs] very expensive, I think; I personally don’t think that they’re worth it, I really don’t, but other people might have different views on it. I haven’t seen any that I’ve thought my word, that’s a bargain, because, you know, there’s no such thing as a free lunch is there? [Laughs].