Should I buy an annuity to cover care fees for my mum?

Should I buy an annuity to cover care fees for my mum?


Please could you advise me. We are about to take out an annuity to cover a shortfall in care fees for my 96 year old mother who has just gone into a care home.

After Boris Johnson’s statement on becoming Prime Minister, do you think this is still a good idea?

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Funding decision: Should I buy an annuity to cover care fees for my mum, or will Boris Johnson fulfil his promise to fix the system? (Stock image)

Funding decision: Should I buy an annuity to cover care fees for my mum, or will Boris Johnson fulfil his promise to fix the system? (Stock image)

Steve Webb replies: Despite the new Prime Minister’s statements, it would be very surprising if anything significant happened when it comes to funding for care for many months if not several years. 

This means you should probably make any decision about whether or not to take out one of these policies based on the rules as they currently stand.

Finding a fair way to fund long-term care costs has defeated successive governments for more than two decades, so a quick resolution seems unlikely, especially as the government barely has a working majority and this is a very contentious area politically.

As long ago as 1999, a Royal Commission on long-term care for the elderly recommended that nursing care and personal care should be free for those who needed it but those recommendations were never implemented.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Under the Coalition government a commission of inquiry headed by Sir Andrew Dilnot recommended a number of changes to care funding, including a lifetime ‘cap’ on personal care costs. 

These proposals got as far as being incorporated in an Act of Parliament (the 2014 Care Act) but were never implemented.

One of the big sticking points is whether people should be expected to use the wealth locked up in their home to pay their care bills.

Under current rules, if one member of a couple goes into care but the other remains in the family home, the value of the home is ignored when working out what they can afford to pay towards their care costs. 

But if a single person or a widow/widower goes into care then the value of their home is taken into account, and they are expected to use their housing wealth to pay their care bills before the public purse steps in. 

This is why there is talk of ‘selling your home to pay for care’.

No-one knows for sure how many people are in this situation, but it has been estimated that perhaps 20,000 people per year end up selling their home to pay for residential care costs.

The 2017 Conservative manifesto took a rather different approach which would have guaranteed that people were left with at least £100,000 of the value of their home regardless of their care costs. 

But it also proposed including the value of the family home in the means-test even where people were still living in it. 

This was described by critics as a ‘dementia tax’ because those with long-term (but not terminal) care needs could run up a huge bill which would have to be largely funded by the value of their home.

Since the last election, the Department of Health and Social Care has been promising a Green Paper on social care. 

But a Green Paper is simply a discussion document which sets out options, and yet even this has been on hold for more than two years as the government could not agree on a new funding package.

The new Prime Minister is aware of the concern over this issue and has talked about making sure people do not have to sell their home to pay for care (see here, for example). 

He has also talked about publishing a new White Paper on care funding within a month. A White Paper does not change the law but is a set of firm proposals.

However, the key point is that even if a White Paper is published in the next month, it will probably need to be followed by a new Act of Parliament to make major changes to the system. 

If there is a consultation period following publication of a White Paper, then any new Act might not appear until the New Year, and could then take a year to be considered by Parliament. 

Even if that process was completed by early 2021, it could easily require a year for local authorities and others to set up new systems, so implementation in 2022-23 might be realistic. 

On this basis, unfortunately, I think it is unlikely that the government will make changes that would affect the choices you have to make today for someone who is already in residential care.

What ideas are being floated to overhaul social care? 

A dearth of Government proposals in recent years has led members of the House of Lords, former Tory MP Damien Green and the Association of British Insurers to tout their own plans to overhaul the social care system, writes This is Money.

Meanwhile, insurer AIG surveyed the public on how they would prefer to pay bills for support as their health declined.

A contingency fund option, where people would fund care needs by saving into a special fund that could be bequeathed to loved ones if it wasn’t used, proved the most popular. 

‘Social care funding: Time to end a national scandal’, published by the House of Lords’ economic affairs committee, said some 1.4million people had an unmet care need in 2018, and the number of elderly and working age adults requiring help was increasing rapidly.

It called for the launch of universal free personal care. That means ‘essential help with basic activities of daily living, such as washing and bathing, dressing, continence, mobility and help with eating and drinking’ for people with substantial and critical levels of need. 

It would not cover assistance with housework, laundry or shopping, or accommodation and living costs.

Green’s report said everyone should receive basic care in old age, but fork out individually for extras like a bigger room and better food in a care home. 

The ABI proposed tax breaks, a new Isa, and more opportunities for people to tap the value of their homes to help them pay for social care. 

ASK STEVE WEBB A PENSION QUESTION 

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful. 

If you have a question about state pension top-ups, Steve has written a guide which you can find here. 

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