Immediate Need Care Annuity

In 2011, almost 300,000 elderly people in the UK were living in a care home facility. If the numbers of people opting for residential care or those in a nursing home were also accounted for, then it would be a significant chunk of the population.

Yet, only a very small percentage of these people receive assistance from the state.

The cost of long-term care can be staggering. It is estimated that residential care can cost up to £30,888 depending on where you are based in the UK.

Nursing care, on the other hand, can cost up to £41,912 depending on the location.

The cost of long-term care may reduce or increase based on your current health condition.

In such circumstances, an immediate needs annuity might be a good choice.

Also known as a care fee annuity or immediate care plan, it is an annuity arrangement that will pay you a fixed guaranteed income for life to pay for healthcare expenses.

How it works

If there is a significant gap between your earnings and the cost of care, then that amount will be provided by an immediate needs annuity, in exchange for a lump sum cash amount.

It can also be purchased by a caregiver to an elderly relative.

The amount that you would need to pay to receive the guaranteed income would depend on multiple factors. Some of them are:

  • The income you need every month
  • Your age
  • Your health condition (lesser your life expectancy, cheaper the plan will be)
  • Annuity Rates

Once the annuity plan is purchased, the tax-free guaranteed income will be paid directly to the care provider. You can either choose a fixed income or opt for an index-linked income which will rise with rising expenses.

An escalation can also be attached to the annuity in which the income will rise by a set percentage (between 1 to 8%) each year.

Also, you can opt for capital protection, which would assure that, in the event of your untimely death, some amount of the pension pot (up to 75%) would be returned back to your family. However, if you opt for capital protection, it would increase the cost of purchasing the annuity.

Deferred annuity

A deferred annuity is a type of annuity plan in which you can purchase an annuity plan but defer the payments for a specified number of years, which is called the ‘Deferred period’. (1 to 5 years)

If your health is deteriorating or you expect healthcare costs in the years to come, then you may opt for a deferred annuity. However, you will have to pay the cost for the care during the deferred period.

The main advantage of a deferred annuity over an immediate needs plan is that the capital amount needed to purchase the annuity. The more the period is deferred,  the less the annuity will cost.


Annuity providers have various means to determine if an application for immediate care annuity is eligible. The Anderton diagnosis index is considered as a reference guide.

The rate that you may receive will differ according to the medical condition suffered by you or your relative.

Is this the right choice for me? 

An immediate need annuity will be the right choice for you if one or more of the following apply to you.

  1. You or a relative is in a care home or is receiving residential care for a health condition
  2. There is a significant difference in your income and the care costs
  3. You wish to have a guaranteed monthly income that can be utilized for your care costs
  4. You wish to safeguard your remaining capital and cap the cost of your healthcare
  5. You have the capital amount needed to purchase the annuity

It may not be the right choice for you in the following scenarios:

  1. You do not have immediate healthcare costs.
  2. The health condition may only need temporary care
  3. You need the capital amount back in the future
  4. You may be eligible for Continuous Care Funding by the NHS

The Flipside 

An immediate care annuity is usually a one-time purchase that cannot be reversed. For example, if your health condition improves a few years after purchasing the annuity, you cannot cancel it and cash-in.

Also, if your healthcare provider anticipates a short life expectancy for you, then there are other annuity options like an enhanced annuity which may be a better choice.

Read more Types of Annuities to know your options and make a wise decision.






Options For Using Your Pension Pot

Thanks to the sweeping new pension reforms introduced in April 2015, you now have more flexibility than ever to access your pension pot.

Yes, you can choose from multiple options when it comes to accessing the funds in your pension and even choose a combination of options.

So if you are 55 years of age or have a protected retirement age and are legally entitled to your pension funds, then you now have complete control over how and when you choose to access your pension.

But irrespective of whether you plan to continue working, reduce the number of working hours or to retire fully, it is important that you plan wisely and choose the right option or combination that will give you and your dependants a stable income throughout your golden years.

Keep the Pension Pot Untouched

If you are one of the smart ones who started saving early for your retirement and has a supplementary source of income thanks to healthy investments, then you may choose to delay accessing your pension pot.

This applies to you even if you wish to continue working and have a stable monthly income at this point in time.

Delaying access to your pension pot has its advantages. Your Pot will continue to attract tax relief and will grow over time, providing you with a potentially higher income when you eventually access it.

You may need to review your investment choices though, especially if you are close to retiring. Moving the investments to safer investment choices is the expert recommended option.

Do check with your pension provider if there are any restrictions or charges if you delay your retirement date.

RELATED: How to Identify a Pension Scammer

Buy an Annuity

A quarter of your pension pot can be taken as a tax-free cash lump sum. The rest can be used to buy an annuity which will provide you with a monthly income for the rest of your life.

There are two different types of Annuities.

An annuity can also be used to set up a lifetime income for a dependent person or a beneficiary after your death.

Flexi-Access Drawdown

This is one of the newer ways of accessing your pension funds to create a monthly income.

Once again, you can choose to take an amount (25% or whatever you allocate for drawdown) of your pension pot as a tax-free cash lump sum and reinvest the rest of the amount into funds.

You can set your desired income level, and it can be altered or adjusted based on how well your investments perform.

Unlike an annuity, Flexi-Access Drawdown does not give you access to a lifetime guaranteed income. Also, your investments need to be managed with care.

From choosing a variety of investment options (Low and high risk) to using the remainder of the funds like a bank account and making periodic withdrawals, Flexi-access drawdown has its advantages.

Withdrawing Cash Sums when you need it

If you have an urgent requirement for cash, then you can make withdrawals from your pension pot. Apart from the first quarter which is tax-free, every withdrawal may incur charges and will be treated as taxable income.

There may also be limits to the number of withdrawals you can make each year.

Cash-in the entire pot 

The last option is to cash-in your entire pension pot which is considered to be an extremely risky option.

25% of the pot will be tax-free while the remainder will be taxed at your highest rate.

Here are some of the obvious risks of cashing out your entire pension pot.

  • No regular income for you or your dependant
  • Chances of incurring a huge tax bill
  • You may exhaust the entire cash pot
  • You will be left with no income during the later stages of your retirement

If you plan to cash-in your entire pension pot, then we recommend that you get professional financial advice before you do so.

If you still have questions in mind, you may look at our Complete Pensions FAQ.