Immediate Needs Annuities in England
MAJOR ACADEMIC RESEARCH PROJECT PROVES IMMEDIATE-NEEDS ANNUITIES ARE AN AFFORDABLE INSURANCE OPTION WHICH WILL BENEFIT A SIGNIFICANT PROPORTION OF PEOPLE TO FUND THEIR LONG TERM CARE
RESEARCH conducted by leading academic Professor Julien Forder (download here), of the Personal Social Services Research Unit (PSSRU), University of Kent and London School of Economics, has found that 40% of all self-payers could potentially afford and benefit from an Immediate Needs Annuity(INA). The data suggests a dramatic increase of 6 or 7 times the current numbers in use nationally.
• Under 7,000 immediate needs annuities in force nationally (The Strategic Society Centre estimates 4% or roughly 4,800 policies)
• Research demonstrates that 6 or 7 times more people can afford them – and would benefit from them in being concerned about the risk of higher than expected care home costs.
• This is equivalent to 40% of all self-payers
• 25% of people who receive an INA quote will buy one
• £4 - £6bn, estimated amount spent privately on care – yet currently only £100 million (ABI) spend on INA market
Professor Forder’s research - using the PSSRU’s dynamic microsimulation model of social care for older people - has concluded that there is significant scope to extend the beneficial use of INAs (or Immediate Care Plans) among current self-payers of residential care in England.
There are over 120,000 older people in residential care who pay the full costs of care themselves because they have (eligible) assets of over £23,250 (including property) in England.
The research suggests that 40% of all self-payers can afford and would benefit from an INA.
INAs guarantee an income for life to fund care costs in return for a one off premium and are designed for adults requiring immediate financial support with their long term care costs.
They provide peace of mind for residents and their families because the total costs of residential care are uncertain and people risk exhausting all their savings.
Chris Horlick, Managing Director, Care at Partnership said: “This research is extremely important. We believe that Immediate Care Plans have an important role to play in meeting care needs, as typically the decision to enter care is a ‘distress purchase’.
” The average length of stay in a care home in England is estimated to be around 2.5 years. Partnership’s policyholders who are all self-funders live on average for 4 years and 12% live for 8 years or more1. Care Annuities including the INA are the only financial services product which, are designed to provide an income to help fund the costs of care for life.
The Care Annuity Market is valued at around £100m in the UK2. “However we believe that this is still far too small given the importance of these products to consumers and when compared with the £4 - £6bn which we believe is spent privately on social care funding,” said Horlick.
“This research demonstrates that INAs are not just beneficial they are also affordable for a significant number of people,” he added.
“The average cost for one of our care plans is £85,000 however people paying for residential care will typically be leaving a house costing (based on the UK average) of £163,1773. The difference between the two can be left as a legacy to family, which is typically the primary intention for people who have covered the cost of their care.”
Partnership data reveals that 25% of people who receive an INA quote will buy one4. This conversion rate for a discretionary purchase at significant premiums is exceptional, and demonstrates the potential for this product to grow significantly if there was greater awareness of the product and recognition that it is affordable and beneficial.
Professor Forder, PSSRU commented: “Research on the net benefit and affordability of Immediate Needs Annuities suggests that around 45,000 self-funders in England would both benefit from them (making the usual assumption that people buy insurance for peace of mind) and be able to afford them.
“These 45,000 potential beneficiaries are largely those people that are living alone with high levels of wealth (especially housing wealth). Overall, we can conclude from this analysis that there is significant scope to extend their beneficial use among current self-payers of residential care in England.
” Concluding, Chris Horlick added: “Immediate Needs Annuities can play a significant role for self-funders in the broader context of what the state will pay for and what the individual is expected to pay for themselves. We hope that the Dilnot Commission is aware of the potential that these products can bring, not only as a guarantee that care costs are met but in terms of the peace of mind they can bring to policyholders and their families.
“They also reduce the costs to government by ensuring that self-funders never run out of money and fall back on the state and provide similar comfort to the care home sector. It is essential that more is done to signpost self-funders to qualified financial advisers” Notes to Editors
The Personal Social Services Research Unit (PSSRU)
PSSRU was established at the University of Kent at Canterbury in October 1974. In 1996 new branches opened at the London School of Economics and Political Science (LSE) and at the University of Manchester. The PSSRU carries out independent research aimed at improving the equity and efficiency of social and health care. Julien Forder’s Report Immediate Needs Annuities in England aims to assess whether Immediate Needs Annuities might have a bigger role to play in the care system. The PSSRU dynamic microsimulation model of social care for older people was used to look at the scope for the beneficial use of INAs among older social care users. This model can be used to simulate a wide range of policy and demographic scenarios, including the uptake of INAs, as they would affect a representative sample of older people in England (drawn from the British Household Panel Survey).
Immediate Care Plans
If they are paid directly to a recognised care provider they are tax free*.
Greater use of Immediate Care Plans would, as part of a partnership approach to care funding, help many older people and local authorities to mitigate the risks of self-funders prematurely exhausting their funds.
The same care products can also be used to fund domiciliary care and as they are portable can be transferred to fund residential care to reflect changing care needs.
* The rules governing taxation are subject to review and can change depending on individual circumstances.
1,4 Partnership Data 2011
2 ABI 2011
3 Land Registry House Price Index, January 2011 Press Enquiries