How Care Fee Annuities work in practice

The following example is based on the quotations illustrated above and is not a real-life case study.

Mrs Smith, aged 90, is currently resident in a care home where the costs (including personal spending) are currently £25,000 per annum. She has a total income of £13,000 per annum and capital of £150,000.

The difference between her income and care fees means that Mrs Smith’s assets are currently eroding at a rate of £12,000 per annum. Mrs Smith’s daughter investigates the cost of a Care Fee Annuity and chooses to purchase a plan which pays £12,000 per annum at outset and increases each year by 5%.

The cost of this annuity was £51,300 and as the majority of the funding problem had been solved, Mrs Smith’s daughter was able to place some of the remaining capital into a safe investment for future growth.

So, Mrs Smith:

·          Benefits from having a guaranteed, tax-free income paid to her care home every month for the rest of her life.

·          Stopped the erosion of her capital.

·          Protected her remaining capital making it less likely that she will run out of money.