A Deferred needs annuity, sometimes recognised as a care fees annuity is a enhanced rate later life purchased life annuity with annuity payments deferred i.e., postponed for a fixed period e.g., 1,3, 5 years.
As explained for Immediate needs annuities, see Care Fees Annuity, a defferd care fees purchased life annuity is where you buy an annuity with your own savings rather than a pension annuity bought with your pension fund to buy a guaranteed income.
- Pension annuities are taxable to income tax.
- Purchased life annuities are treated as a part return of capital and part taxable income.
- Deferred needs care fees annuities (after the deferred period ends) are paid tax free provided the annuity is paid direct to a registered care provider to cover your care costs.
Deferred Need Annuity Key Points
- You must already be in residential care.
- Much cheaper than an immediate needs annuity as you use your own capital to pay for care during the deferred period.
- After the deferred period, the annuity is used to cover your care fees in full or if you have a shortfall in income to cover your care costs.
- Tax free income if paid to the care home direct.
- There is no cash in value, and you cannot stop the annuity once started, it is paid for life.
- The annuity income payments are usually inflation linked to protect you from increases in care fees costs.
- There can be capital protection if you die prematurely but usually only if you pass away within 6 months.
- You are never too young. Deferred needs annuities are available for people already in care.
Pros and Cons
- If you die prematurely, even during the deferred period, the money is gone (unless within 6 months)
- If you live for a reasonable period in care, you have benefit of paying less for a deferred annuity rather than an immediate needs annuity and then the security that your care fees are covered rather than exhausting all your remaining assets to pay for care by offering inflation linked protection for life.
Interest rates and therefore government borrowing rates have been low for many years but are now much higher. This means that annuity rates are the highest they have been for many years. This is starting to make Deferred needs care fees annuities popular again.
There are several Deferred needs annuity providers in the market and more coming on stream. To compare and then apply, we will work with you to complete a full medical health and care needs questionnaire, this must then be sent to each Deferred needs annuity provider for them to underwrite and offer an annuity quotation and terms before applying for a paying for your care annuity.
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