Janet Read's 95-year-old mother, Cecilie Palmer, recently entered a nursing home. But good nursing homes are not cheap and Janet must now decide how she is going to pay the £2,500-a-month fees for her mother's care.

After she suffered a fall and stayed in hospital recently, Cecilie went to live at a registered nursing home where she can receive 24-hour care. Janet, who has power of attorney over Cecilie's estate, has put her mother's sheltered-accommodation flat on the market at an asking price of £145,900. She expects the net proceeds to be about £143,000 after paying the associated fees.

Janet says: “We have a history of longevity in the family and my mother could live for another five or ten years, so I want to invest the money from her flat in the best way possible to pay for her fees as long as she needs to be in the nursing home.”

Cecilie's nursing fees are currently paid for from her £37,000 savings. These are held in an Abbey Postal savings account with an interest rate of about 4 per cent. She has no other savings. Although Cecilie has no private pension, she does receive a full state pension of £90.70 a week and a further £268 a month from a Zurich Home Income Plan - an annuity taken out 20 years ago when she remortgaged her house.

She has shares in Royal Bank of Scotland, Shell and British American Tobacco, which yielded a total of £838 last year. She also has £3,000 invested in Treasury stocks with an interest rate of 8 per cent, yielding £240 over the past 12 months.

The nursing home fees cover Cecilie's rent and all her daily living expenses, so she needs only to budget for £100 a month of pocket money for presents and visits to the hairdressers.

The nursing home receives £139 a week in registered nursing care contribution, a government benefit, which has reduced Cecilie's bill to £2,500 a month.

After all of Cecilie's income and government benefits are taken into account, she will still be left with an income shortfall of about £10,200 a year when paying the nursing home fees. Janet would, therefore, value advice on the best way to invest the money from the sale of her mother's property to make up this annual shortfall.

Janet says: “This shortfall will increase over the years, as the cost of care is likely to rise, especially if my mother's health deteriorates. With this in mind, I want to opt for low-risk investments and would be happy to tie up some of the money for two, or even five, years in bonds. As the money is needed only for nursing fees, if my mother were to die tomorrow, I would not need to be able to gain access to it at short notice.”

Janet would also like some advice on how to make sure that her mother is paying the right amount of tax. She says: “Mum is not liable for tax, but she is being taxed 10 per cent on any dividends from her shares. I notice that this tax is deducted at source from her account and is then refunded by the taxman at the end of the tax year. It used to be that - if they signed the necessary paperwork - non-taxpayers did not get taxed at source. Can you tell me if this is still the case?”

What the experts say

PROPERTY
Chris Lee,
Care Planning Associates

“Until the flat is sold, I would recommend that the £37,000 in savings be kept in higher-interest savings accounts, including£3,600 in a cash Isa. A monthly direct debit should be set up to pay the nursing home fees from one of the savings accounts.

“As it may take some time to secure a purchaser for the flat, and with £2,500 a month being spent on fees, it will take only about seven months for Cecilie's savings to drop below £22,500. When they do drop to this level, she will then be entitled to assistance with fees from her local authority. Janet should request a local authority assessment to be carried out in the next few months to assist with paying for fees while the flat is on the market.

“In the event that the flat does not sell, she could then consider an application for a deferred loan from the local authority or consider utilising a specialist property management company, such as Bridgefast.

“Assuming that the property is sold and a lump sum becomes available,

I would then consider buying an immediate-care annuity, in conjunction with an investment portfolio.

“Janet should also apply for attendance allowance immediately. Cecilie should receive this at the higher rate of £67 a week because she requires 24-hour support. The allowance, which is not means-tested, would be paid with Cecilie's state pension and is non-taxable.”

Action Plan

Apply for attendance allowance.

Transfer savings to an Isa and higher-interest savings accounts.

Request local authority assessment if property not sold soon.

ANNUITY PURCHASE
Janet Davies,
Symponia

“An annuity is when you pay a lump sum to a company in return for a regular income for the rest of your life. Janet should consider buying an annuity with part of the proceeds from the property sale to cover Cecilie's annual income shortfall.

“For a lump sum of £38,481, an AXA Lifetime Care immediate-needs plan, a type of annuity, can be purchased. This will guarantee an income of at least £10,217 a year for the rest of Cecilie's life. This type of annuity is always tax-free if paid directly to the care provider - in this case, Cecilie's nursing home.

“This quotation also includes an integral escalation element, meaning that the £10,217 will increase by

5 per cent a year automatically. Should you not wish to include any escalation, the initial premium would reduce to £31,651.

“In the event of death, there will be no return of capital, though a degree of capital protection can be bought for an additional lump sum. Cecilie would have to survive for a little more than three years to receive the equivalent of a full return of capital.

“With regards to Janet's tax query, non-taxpayers cannot claim back the 10 per cent tax on dividends. But sending an R85 form to each bank or building society with which Cecilie holds accounts will prevent tax from being deducted from her savings.”

Action plan

Consider an immediate-needs plan after the flat is sold.

Request an R85 form from the Revenue.

INVESTMENT
Owain Wright,
Saga Care Funding Advice Service

“Once Janet has bought an annuity to make up the income shortfall, she can either put the remaining capital from the property sale in cash savings or encourage the capital to work harder by investing it.

“Even with interest rate cuts, savings rates are still attractive. One-year fixed-rate bonds are offering up to 6.81 per cent at the moment. Janet will want to keep about £18,000 in an accessible current account to meet the first year's shortfall in nursing home fees, with some left over for emergencies.

“However, she may wish to consider investing most of the capital to obtain greater returns. A portfolio of bonds, commercial property and cautious managed funds would give the best balance between lower risk and reward. For bonds, I would choose Invesco Perpetual Corporate Bond, Old Mutual Corporate Bond, Schroder Gilt & Fixed Interest Fund and Threadneedle Strategic Bond. For property, I suggest Threadneedle UK Property and Scottish Widows Commercial Property. For cautious managed funds, I like the Gartmore and Investec offerings.

“Although property might be considered a controversial choice, the fundamentals of our preferred funds are very strong. Even so, it is difficult to predict exact returns and values can fall as well as rise.”

Action plan

Decide between putting the proceeds of the sale of the flat into cash savings or investments.

If putting most of the money into cash, choose high-interest bonds.

If putting it into investments, pick low-risk funds.

Janet's response

“I was not aware that my mother, as a homeowner, could get help from the local authority if her funds fell below £22,500. I will look into this if we do not sell the flat in the near future.

“When we do sell the flat, I will definitely invest some of the money in an immediate-needs care plan to help to cover the shortfall in income. I will start investigating this by obtaining quotes from different annuity providers.

“When I phoned the Department for Work and Pensions to tell them of my mother's changed circumstances, they told me that she was not entitled to any financial assistance. I will call back and make sure that she receives an attendance allowance.

“I like the idea of unit trusts. I will keep some money in an easy-access account but will probably invest the rest in funds.”

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