Paying for care and the various options available is a large subject with me introducing the topic in my earlier parts 1 and 2 of this series. Recapping on my last instalment though – 3a gave a few insights to the Local Authority (LA) financial assessment, use of income and investments, and started to look at options involving property.

Here I will continue the property theme and expand into a specialised product which most will know little about…. intriguing!

Property

If you have sold it to move into care or to move downmarket and release some capital, we would be talking about using the proceeds to invest in some shape or form. But what if you would like to keep your home?

Renting – The decision to rent your property out will depend on several factors, chiefly perhaps the size of the gap in your finances. If the rent can generate sufficient income to cover your shortfall, then it becomes an option but if it cannot, the only remaining option might be to sell.

Renting means that you continue to own your property. This may be a big plus! You might rent long-term or use the opportunity to rent to provide you with some breathing space to decide on a course of action. Perhaps the market is not right for selling for example. Thus, flexibility!

The downsides could be the associated costs of managing the property, and as a landlord, the decisions needed to maintain it: – the worry of finding tenants and when you do, will they pay on time, and will they look after the property? Rental income will be taxable, so you would not retain all that you generate.

Renting will not be for everyone and will perhaps be less attractive to those without close friends or relatives in support and/or those with increasing care needs where the ‘hassle’ factor might become too challenging.

Equity Release – Typically aimed at over 55s, this is a form of borrowing against your property with the debt repaid on death or when there is a permanent move into a care home.

Usually, the product provides a single tax-free lump sum although there are options that facilitate a gradual drawdown from a pre-approved limit.

There are two main types of Equity Release: Lifetime Mortgages and Home Reversion.

With a Lifetime Mortgage you retain the ownership of your home. Interest is charged on the sum drawn down, and it rolls up against the value of your property. Some products permit regular repayments much like a traditional mortgage, but there is usually no requirement to make them.

With a Home Reversion, you sell all or part of your property to the product provider in return for a lump sum or regular payments. You have the right to remain in the property and there are no repayments to be made.  There is no interest charged on the loan. Instead, the product provider sells the property on your death or move into a care home, and they keep the percentage value of the sale proceeds equivalent to the percentage ownership they have of the property.

With both arrangements there are similar fees involved, perhaps a broker fee, a product fee, a property valuation fee, and legal fees.

It once had a bad name and there are still some that consider Equity Release to be taboo. However, its reputation, where spoken about in dismissive, hushed tones, harks back to days of poor regulation, poor advice, and limited product options. Today the market is regulated, and product options and features are much improved and increasingly flexible.

In the right circumstances Equity Release is an option to be considered as part of an individual’s wider financial planning needs. Money released can be used for almost any legal purpose including improvements to lifestyle, repayment of debt, Inheritance Tax planning, and the subject currently dear to our hearts…care funding.

I am leaving the world of property behind now and moving into the realm of annuities, specifically the Immediate Needs Annuity or Immediate Care Annuity or Care Fee Plan. A product with many names but little recognition in my experience and whilst it might not be everyone’s ‘leading actor’ it deserves its place among the cast of care funding options to be explained and considered.

Immediate Needs Annuity (aka Immediate Care Annuity/Care Fee Plan)

When we hear the word annuity, most of us will likely think of pensions. Annuities are one of the products that you can buy with your pension at retirement. But annuities don’t have to be bought with a pension fund. Let us remind ourselves of what an annuity is…

Like Equity Release, annuities have their detractors, but essentially, you buy an annuity and guarantee yourself an income usually without taking any investment risk. What’s not to like? The annuity rate maybe? Pension annuity rates are closely linked to interest rates so better of late but pretty horrible for almost a decade. Care annuity rates are determined more by your age and health and in my experience, they provide a significantly better return. What’s more, the income they generate is usually paid direct to the care provider tax free. It does not form part of your income for tax purposes.

‘Tell me more’ I hear you say. Sure. The income generated is guaranteed for life. Funding care fees from cash and investments alone will often result in the capital depleting at an alarming rate. This can be stressful to the individual receiving care or to family members and/or attorneys attempting to manage the financial situation. A care annuity can relieve some of the pressure by providing that guaranteed lifetime income.

You do need a lump of cash from somewhere to buy one of these. That could be existing cash, investments that you sell, or the proceeds of a property sale for example. You can elect to buy an annuity that increases annually to offset the increases in care costs. You can protect some of your invested capital should you die early so that some of the capital is returned to your estate. You can buy a deferred annuity that kicks in a little further down the road, perhaps after you have met the first year’s care costs from another source. Deferred annuities will cost less for the same level of benefit as an annuity that starts paying immediately.

I could go on, but Bargain Hunt is on next and I am running into the credits.

The products we’ve looked at are often part of a solution rather than being the solution. Craven Street Wealth can advise on both Equity Release and Immediate Needs Annuities so do please get in touch if you would like to know more.

In my final episode I will look at how the NHS might steal the show or at least make a cameo appearance.

For an initial discussion around either your own or someone else’s long-term care plans or requirements with a Society of Later Life accredited Chartered Financial Planner, please contact us on 0330 320 9280, email  info@cravenstreeetwealth.com or complete our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

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