English Mutual Case Studies

 

1. FUNDING PREFERRED CONTINUING CARE – AND THE PROTECTION OF CAPITAL

“Mary had a Lasting Power of Attorney for her 89 year old mother, Sally.   When I met them both, Sally had been in hospital for a few weeks – and had been told that she would need care on a full time basis and would be unable to return home.

Sally moved into a local care home but she didn’t settle – and her changing cognitive capacity meant she had very specific care needs, which the home said that they were unable to provide.  Sally, therefore, needed to find an alternative place to live.  This unsettled Sally and she became very confused and upset.  Mary was very worried about her mother but, fortunately, was able to find a new home happy to help and with the expertise to deal with Sally’s dementia.  Mary appreciated that her mum would always be disorientated and confused because of the type of dementia she had, but she was so relieved that the new home was able both to provide the care needed and to put her Mum at ease.

 

The worry of uncertainty

Sally remained concerned that she might need to move again in the future, because the care home fees were £800 per week.  Having experienced alternative homes and her mum’s change in health brought on by all the uncertainty, Mary’s priority was to make sure her mum could stay in her chosen home for the rest of her life.  Mary did not want to be in a position whereby her mum’s capital would reduce to such an extent that they would need to consider a cheaper home or, worse still, have to rely on a Local Authority funded home.

I had explained to Mary that if she were to run the risk of paying for Sally’s care out of Sally’s available money, it would be like an open cheque book!   She would not know how much of the capital she would be able to protect  – and the Local Authority would not give full funding until the capital had reduced to £14,250  (based on current figures).  Mary had already been told that if the Local Authority was able to provide funding, it would only be up to her mum’s assessment, level of £380 per week.

Mary did not want to be exposed to the uncertainty of future Local Authority funding, preferring to be able to fund her mum’s care from own resources.  She was, however, very concerned because her Mum’s income was only £13,906 per annum and the care fees were £41,600 per year – which meant they would need to pay £27,694 in the first year  alone and the care home had told them that its fees usually increased by 5% per annum.  They had already sold Sally’s home and, together with her cash savings, available capital amounted to £221,000.  As a result, Sally was not entitled to any form of Local Authority funding and, after being assessed, had been told that most of her care needs were personal and, therefore, she was not eligible for NHS continuing healthcare.

 

A solution to guranteed care funding

English Mutual investigated a number of options for Mary and her mum, including leaving the money as cash and using a combination of cash and investments to create an income.  However, to create an income of £27,694 from a sum of £221,000, it would need a return of approximately 12.5%, which is not possible without taking a significant amount of risk.  In addition, we had to be mindful that we would need this income to increase each year and some of the capital would have been needed for buying any items Sally might need.  Mary was not comfortable with the risk of the capital depleting and not being able to sustain her mum’s care costs.  Ideally she was looking for some guarantees with regard to the income they needed to create.

For a lump sum payment of £137,825 an Immediate Needs Care Plan (INCP) was, therefore, purchased.  This guaranteed a tax free starting annual income of £27,694  increasing by 5% per annum for the rest of Sally’s life.  The benefit was to be paid every four weeks directly to the care home, with the difference being met out of Sally’s income.  The income payable from this plan equates to a return of approximately 20% in the first year and, because it is paid directly to the care home, the income is not taxable.

Mary did actually consider some form of capital protection of the £137,825 INCP, which might return a sum of money in the event of early death.  To obtain 25% protection, the premium would have increased to £142,149  –  to guarantee at least £35,538 from the plan.  The protected amount would have reduced each month as the monthly benefit was paid and once they had received £35,538, the protection would have ceased.  Mary did not feel this was necessary, because the purchase of the basic plan without any capital protection, safeguarded £83,175 of her moethr’s capital anyway.  Mary’s absolute priority was to provide guaranteed care funding for her mum, so she could accept that there would be no return of capital when her Mum passed away.

The plan will make a monthly payment to the home for the rest of Sally’s life and if Sally were to live for approximately four years and seven months, the total received to that date would be equivalent to the purchase price of the plan.  Mary is aware that the plan may not be in force this long and that payments will stop when her Mum passes away.  Mary also knew that retaining some of the capital was important to Sally because she wanted to be able to pass some of her wealth on to her family.  Mary realised that her Mum would suffer greatly if she had to move home again, so felt purchasing the plan allowed her to give her mum the things that were most important to her at that time:

  • Peace of mind that she can afford to stay in her chosen home for the       rest of her life
  • Knowing that not all of her money will disappear on care fees
  •  The ability to leave some of her money to her family

 

Taking away the pressure worry

If Sally’s needs increase in the future or her care fees increase more than the increase in the care plan and her pension, there are likely to be sufficient funds available – either to provide an additional income, or to purchase a top up plan if need be.  Mary feels that purchasing this plan has taken the pressure and worry away of financing her Mum’s care bfees.  It has been a very distressing time for them, but Sally is more settled now, knowing the care fees are taken care of.  Mary feels that she can now enjoy visiting her Mum and spending quality time with her, rather than worrying about the money and the possibility of it running out.

English Mutual has been able to help a lot of families fund care fees in the most appropriate way to achieve peace of mind whilst protecting as much capital as possible.  We appreciate that moving a loved one into care is an extremely demanding decision and process.  We can help ease some of that pressure, by providing you with as much information, expertise and assistance as possible.”

 

Nicola Bywater

LEAD ADVISOR, ENGLISH MUTUAL

 

2. Mrs Davis

Mrs Davis has worked hard all her life and was looking forward to leaving an inheritance to her children and grandchildren.  Unfortunately she had recently sold her property to move into a nursing home.  She had a sum of £247,000 in a cash deposit account and asked if English Mutual could establish how she could leave as much as possible to her family whilst making sure she could provide for her care for the rest of her life.  Although Mrs Davis was 90 years old she was in good health.  The only reason she needed care was the fact that her mental health had began to deteriorate.  With a sister of 99, Mrs Davis and her family had a history of longevity.

There were a number of options available to Mrs Davis and her family, other than simply spending the proceeds from her house sale and savings accrued over the years – and hoping for the best.  First, we made sure that Mrs Davis was receiving any state benefits that she was  entitled to and that she had been assessed for any entitlement to NHS Funded Nursing Care. We also established whether Mrs Davis was eligible for NHS Continuing Healthcare, but unfortunately she was not.

As Mrs Davis had assets over the upper means test threshold she had to pay for her own care.  Her income was £12,116 per annum and her care fees were £31,908 per annum and, therefore, she would have to find an additional £19,792 each year.  This shortfall is likely to increase each year as care fees increase and the value of her capital decreases.

Although Mrs Davis could have created a reasonable income by investing some of her money, it would not have covered the total shortfall and Mrs Davis and her family did not want to take any excessive investment risk.  They were looking for a more secure income and, therefore, took out an Immediate Care Plan for £118,665*, to cover the shortfall between her income and the care fees.  In return for a one off payment of £118,665 a guaranteed income would be paid for the rest of Mrs Davis’s life.  The income in the first year would be £19,800 and this would increase each year by 5%.  In addition, because the family had secured a guaranteed income and the rates on cash savings were so low, they decided to invest £70,000 in a very cautious portfolio for growth – and also to provide flexibility to take an additional income if this were necessary in the future.  The remaining capital was left as cash.

At the time of writing, Mrs Davis is still living in her chosen care home without fear that she will outlive her capital.  We meet with Mrs Davis and her family once a year, to review the investment and ensure the care plan continues to provide sufficient income.  By purchasing the care plan, Mrs Davis was able to retain £128,335.00 of her capital (£70,000 as an investment and £58,335 as cash) and this value has the potential to increase.

* Partnership Assurance

 

 

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