Peter is a Chartered Financial Planner and holds the full Society of Later Life (SOLLA) accreditation. Peter specialises in later life planning. Florence holds power of attorney for her father Alan, aged 80 and she needed advice around care options.
My prime concern was around running out of money and being forced to move my father from the home, we had chosen for him, to one stipulated by the Local Authority. Both of his parents, my grandparents, lived to their mid-90s and his sister is 84 years old and in good health. I have always been sure that my father would have longevity on his side.
Sadly, my father was living with dementia, which was diagnosed five years ago, had an underlying heart condition and needed assistance with some Activities of Daily Living (e.g. eating, bathing, getting dressed etc). He was still able to make decisions for himself but did need my support.
He had income of £23,500 per year, made up of state and private pensions plus Attendance Allowance. In addition, he had investment income of £250 per month. His assets were £80,000 of investments through shares and ISAs plus a property which was to be sold for £400,000. The property was expected to have a completion date for sale at month end.
My father was in Cliff Heights Care home where the annual fees were £60,500 per year, he was very settled. There was a shortfall in the annual fees of £34,000 per year.
I had helped arrange a Local Authority Care Needs Assessment as well as a Financial Assessment and the conclusion was that Alan would be a “self-funder”, meaning we were responsible for paying his care fees. With Peter’s help, the possibility of the care fees being fully underwritten by the NHS had been explored and discounted (NHS Continuing Care and Section 117 of the Mental Health Act). My father did not qualify for Funded Nursing Care as it was deemed that his medical care needs were not sufficiently acute.
Peter took the time to explain three main options available to fund the care fees; these were cash, investing or an immediate needs annuity. I had already decided to sell the property, but this was reinforced when Peter demonstrated it would not be affordable to keep it based on the anticipated rent it might produce, and the likely cost of care. In addition to this we felt the property would have required substantial modernisation before it would have been of an acceptable standard for the rental market.
Knowing we would sell the home Peter used a financial model to demonstrate the effect of using £375,000, partial proceeds from the property sale. It showed there would be sufficient money held in cash to pay fees for around 9 years assuming the fees increased each year by 5% pa. I was aware that money held with banks and building societies received relatively low levels of interest, and for the purposes of our planning Peter showed different scenarios based on a few feasible rates. The results of this modelling showed that in nine years time, the cash on deposit would have depleted, at age 88, and there would be nothing remaining in the bank. This demonstrated to me this was not appropriate as my prime worry had always been the prospect of running out of funds and having to move care homes or be moved to a cheaper, less desirable room within the existing home.
Peter also showed what would happen if we invested the funds to cover the cost of care fees. We always knew it would not be appropriate to take on anything more than a low level of investment risk and we would keep a cash holding of around £75,000. Peter felt that if £300,000 was invested, the funds would last longer, but only to my father’s early 90s, and with this would come the risk of fluctuations in value, which we were not entirely comfortable with.
This led to the recommendation of an immediate needs annuity. Peter explained that this was an arrangement where, for a lump sum payment, a secure stream of income would be established for my father’s lifetime covering an agreed sum, in this case, the shortfall in the care fees of £34,000 per year.
The annuity income would be paid directly to the care home, on a monthly basis, with no tax to pay (tax free). The annuity had an element of escalation, which aimed to address the reality that fees would increase each year. Peter’s planning, research and careful explanations showed that the annuity was really the only option which met our primary objective of not running out of funds and/or income and reducing the likelihood of moving my father.
Peter spent time to research the market, using information gathered on my father’s health. The cost of providing a secure income for my father’s care fees for his lifetime was £170,000 (an annuity rate of 20%), increasing each year with inflation (agreed to be RPI). We felt this was good value given our family’s longevity, but more importantly we also felt that the immediate needs annuity offered peace of mind – a good insurance option. The annuity removed the concern of running out or reaching worryingly low levels of cash in the future and so having little or no scope to plan or take positive action around funding fees at that time.
In addition to this, my father also had funds remaining from the house sale of £205,000. Peter recommended that a proportion of this should be held on deposit – cash, the merits of instant access, notice accounts and possibly NS&I products were considered. It also meant my father could meet personal needs simply – he continues to read his daily newspapers! The balance of the cash was considered for a suitable cautious investment portfolio along with a review of his investments.
Overall, I am really pleased with how Peter followed a comprehensive and structured review of planning for my father. Where possible he did involve him in the decision making, but ultimately, we are all very pleased with the outcome of the advice, the peace-of-mind it provides, and knowing that our father will be secure in his new home for the rest of his days.