For a family with an elderly
relative that now requires 24 hour care after suffering an
illness, it is often the case that they cannot cope themselves
and have to admitted the relative to a nursing home. The long
term care costs for a nursing home do vary for different
locations in the United Kingdom, however they usually cost
more than £20,000 per year.
It is also possible to use a purchase
life annuity instead of an immediate needs annuity using
a lump sum to pay for the cost of a nursing home where the
value of the estate is large, say £100,000 or more.
It would also be possible to buy an impaired
health annuity for the elderly relative, however, the
immediate needs annuity can be paid tax free to the nursing
home and therefore is more tax efficient.
However, if the individual has capital of more than £20,000
in England there would be no assistance from NHS
funding or the Local Authority. This means that if the
estate is large, a significant amount of its value could be
used on nursing home care if the elderly relative lives considerably
longer than expected and very little eventually left to the
beneficiaries, such as children or grandchildren. Fixed
rate escalation can be added to an immediate needs annuity
to protect it against the rising cost of long term care.
The annuity rate for an immediate needs annuity is dependent
on the medical
conditions they suffer from, the age of the individual,
features of the annuity and the activities
of daily living they can or cannot perform. Before making a decision regarding long term care, learn more about annuities, compare annuity rates and secure a personalised immediate needs annuity quote offering guaranteed rates.
In general, individuals that
qualify for impaired health rates have a significantly reduced
life expectancy (usually less than 5 years to live). It could
be that a family now require long
term care for an elderly relative in a residential care
or nursing care home due to a serious illness and they want
to protect the estate from the high costs, in which case they
can consider an immediate
The leading causes of death in the UK account for 80% of all
deaths for males and females that are over the age of 50 are
heart disease (37.0%), cancer (24.0%), stroke (12.0%) and
major organ failure (8.5%). Any individual who has survived
or currently suffering from these conditions can be considered
by underwriters for an impaired life annuity.
When considering the income
to pay an impaired health the insurance company should use
a combination of mortality tables and underwriting guides developed from the mortality
experience of impaired lives. At retirement the individual can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.
and Corporation Taxes Act 1988
The legislation governing the approval and tax treatment of
a personal pension was introduced by the Finance Act 1987
and was incorporated in the Income and Corporation Taxes Act
1988 (ICTA 88), chapter IV, part XIV. The specific sections
pensions are sections 630-655 and that for a retirement
annuity are sections 618-629.
For an occupational
pension scheme, to benefit from the tax advantages afforded
by the Inland Revenue, the employer may establish an approved
scheme under section 590 of the ICTA 88, although most opt
for an exempt
approved scheme issued by the Pension Schemes Office (PSO)
due to the extra flexibility of these schemes. The PSO publishes
practice notes that set out the maximum occupational pension
scheme benefits and conditions for tax approval and in particular
practice notes (IR12 (1997)) that were last re-issued in August
Also important is section 601-602 of the ICTA 88 that relates
to a defined
benefit scheme in surplus where assets exceed liabilities
by 5.0% or more and the appropriate action to be taken by
the scheme trustees and employer.
An adviser that is in a position to review all the available
products and companies on the market as the basis for recommendations
to clients, is known as an independent financial adviser (IFA).
From midnight on the 30 November 2001 all IFA firms were regulated
directly by the Financial Services Authority (FSA),
formally the Personal Investment Authority (PIA).
For an IFA to give advice on a pension
transfer, for example in relation to a pension sharing
order as a result of an external
transfer, a further qualification, such as G60 Pensions
forming part of the advanced financial planning certificate
(AFPC) will be required under permitted activity 13 of the
FSA Handbook of Rules and Guidance.
There are 77,000 registered individuals of which 26,000 are
IFAs, 10,000 are IFAs formally registered with professional
bodies such as solicitors and accountants and 41,000 operate
as direct sales forces or tied agents. Of the 4,300 IFA firms
the largest 30 account for 80% of the registered individuals
in this segment.
Due to the impact of inflation during the 1980s and 1990s,
the benefits from occupational pension schemes could be easily
eroded. The Pension
Act 1995 introduced regulations requiring exempt approved
schemes to increase pension benefits in payment by at least
the appropriate percentage known as the limited price indexation
(LPI), that is the Retail Price Index (RPI) up to a maximum
cap of 5.0% per annum. These indexation regulations do not
apply to voluntary contributions made by the scheme member
such as additional voluntary contributions (AVC),
which are excluded.
Introduced from 6 April 1999 to replace personal
equity plans (PEP), individual savings accounts (ISA)
were guaranteed by the government to run for at least 10 years
offering investors a vehicle for tax efficient long term savings.
ISAs have similar investment features of both TESSAs and PEPs.
The maximum allowance to a single ISA manager is £7,000
per annum into a maxi ISA where the investment must be applied
to stocks and shares including unit
trusts and investment trusts. Alternatively, the £7,000
per annum allowance could be invested in a mini ISA with £3,000
to cash, £1,000 to life assurance and £3,000 to
stocks and shares with the option of having a different ISA
manager for each segment.
In addition, those with a maturing TESSA will be able to invest the original capital of up to £9,000
into a TESSA-only ISA. This capital cannot include any interest
or bonuses which can be invested in the individuals annual
An insured personal pension is where a life insurance company
manages the assets and where the Financial Services Authority
(FSA) must authorise the fund managers. This arrangement will
include private managed funds (PMFs)
but will not apply to self invested pension arrangements such
as self invested personal pensions (SIPPs)
or small self administered schemes (SSAS)
where the investment decisions are the responsibility of the
A pension sharing order will create a pension
debit against the scheme member in favour of the spouses
pension rights. Where dual
membership exists, the former spouse will be allowed to
make an internal transfer and become a member of the scheme
in his or her own right.
As a member of an occupational pension scheme, it will depend
on the scheme rules whether the former spouse will qualify
for discretionary benefits. Where the former spouse fails
to provide details of how they want their pension
credit applied, the regulations will enable trustees of
dual membership schemes to make them a member without their
Single premium unit-linked or with profit bonds are the most
common route for both basic and higher rate taxpayers to invest
through non-qualifying investment bonds.
The advantage of these investment bonds is that the income
within the providers funds rolls up after tax at a rate that
is lower than an individuals personal tax at the basic rate,
although not as tax efficient as individual
savings accounts (ISA).
The investor can take an income of up to 5% of the original
investment per annum without an immediate tax liability, and
this includes all higher rate tax payers. The income can be
continued for 20 years until all the annual allowances have
On full or partial encashment, the tax liability may be much
higher than the gains actually realised. This will depend
on how the investment bond was structured initially as either
a single policy or by segmentation,
the total income of the policyholder at the time of encashment
and the calculation of the top-sliced
gain applied to the bond. This is particularly relevant
for parties on divorce.