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        Updated: April 16, 2024

        Immediate needs annuities

        For many people nearing retirement, immediate care annuities provide the peace of mind that their care fees are paid for should they ever need to go into care.

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        For many people nearing retirement, this immediate care annuities provide the peace of mind that their care fees are paid for should they ever need to go into care.

        Immediate care annuities – also referred to as immediate needs annuities – are commonly confused with immediate annuities. Each product is very different and so to help you make an informed decision about your retirement income, we will be discussing both options.

        We’ll be covering the following areas:

        What are immediate care annuities?

        Immediate care annuities – also known as immediate needs annuities – are a type of annuity often taken out my retirees who would like a regular income that is paid directly towards the costs of their care.

        The annuities are bought for a lump sum (usually from a pension) and the provider (usually an insurance company) pays out until the account holder dies or until their beneficiary has died depending on the terms of their contract.

        Unlike other annuities which are paid to the account holder, immediate care home annuities can be paid directly to the care provider.

        In fact, opting for this route ensures that the income from the plan is tax free. This can be a great benefit to some as it leaves more money to pay for their care costs.

        Speak to a expert today

        How does an immediate needs annuity work?

        There are many different variations of immediate needs annuities. Some may offer differing terms and therefore require a larger upfront payment.

        Most care annuity providers will calculate the amount they want you to pay upfront by determining your:

        • Age
        • Health and life expectancy (the poorer your health or shorter your life expectancy, the cheaper the plan will be)
        • And the level of income you need throughout your retirement

        Factors such as your health could affect the amount that the immediate care annuity provider has to pay throughout the duration of the plan.

        If they estimate that the cost could be high, they may ask for a larger upfront sum.

        If you would like to speak to an annuities advisor to discuss how much an immediate care annuity could cost you based on your circumstances, make an enquiry with us.

        Pros and cons

        For some people, knowing that their immediate care annuity will pay out for their care costs is a relief.

        However, as with any annuity product, there can be risks.

        To help you understand more about the immediate care annuity pros and cons, we’ve listed them below.


        • Having your future care costs taken care of can provide some retirees with the assurance that their family won’t be left to pay.
        • The income for your care costs is usually guaranteed for life (always have an expert check your terms and conditions).
        • As long as the payments from an immediate care annuity are paid directly to the care provider, the income is tax free.
        • The costs of your care are paid as a lump sum which therefore caps your care costs.
        • Some providers include the option for annuity long term care insurance. This would mean that if you were to die ahead of your life expectancy, a percentage is paid back to your beneficiaries.


        • Once you’ve taken out an immediate care needs annuity you won’t be able to cancel the plan.
        • If the level of care you require in the future drastically changes, the money paid out from the immediate life care annuity might not cover the whole cost.
        • You might not require care for a long time and so you could potentially lose money, especially if you never end up needing it.
        • Any payments from your immediate care annuity plan may affect your entitlement to some means-tested state benefits.

        What else to immediate needs annuity providers charge for?

        Some providers can also charge expensive administrative annuity care fees for any paperwork or forms that need to be processed.

        It can be helpful to contact an annuities advisor if you are unsure about any fees you have been asked to pay.

        How do I get the best immediate needs annuity rates?

        Simply make an enquiry here. The pensions advisors we work with will always strive to find the best possible deal for you by comparing care annuity rates, fees, terms and conditions and product costs across the whole of the market.

        Should I use a care home annuity calculator?

        Lots of people come to us for help after using an online immediate needs annuity calculator.

        These calculators can provide quick immediate needs annuity quotes and rates based on minimal information, however, these can sometimes provide inaccurate figures.

        How do I get a more accurate quote?

        For a precise and more detailed care annuity quote, speak to an annuities expert. They will know which providers offer the best rates and terms but more importantly, they can advise you on which product may be the most suitable for you, even if it isn’t necessarily an immediate care annuity.

        What is an immediate annuity?

        Not to be confused with an immediate care annuity, an immediate annuity is a separate product altogether.

        This type of annuity requires you as the account holder to pay a lump sum at the beginning of your agreement. This is known as a premium and the amount you deposit can affect the payouts you receive as well as the interest rate you earn.

        The contract is usually taken out with an insurance company who will agree to pay you a certain amount of money for the rest of your life.

        The amount you receive is calculated based on the amount you deposit as well as other factors including your age, health and whether or not you want your beneficiaries to receive payouts after you die.

        You can choose how often you receive your payouts, for example, monthly or quarterly. Some people decide to receive their funds monthly as any payments are seen as income and are therefore taxable.

        What are immediate annuities designed for?

        This type of product can be an option for those that want a steady and regular income during their retirement in exchange for a single lump sum of cash.

        Taxation for single premium immediate annuities

        Immediate annuities are seen as a form of income and are therefore taxable. However, an immediate annuity may be purchased with your pension which does have certain tax benefits.

        For example, when you retire, 25% of your pension pot can be taken tax free and the additional 75% portion of your pension can be used to buy annuities, if you so choose.

        Depending on how much you receive as annuity payments, your income from your scheme may be subject to tax.

        The rate of tax you pay is also based on how much income you receive from other sources such as a state pension, benefits or a job.

        It is usually the case that those in retirement have a lower income and therefore pay the lower tax band, which is why opting for an immediate life annuity can help to avoid paying high rates of tax on your pension funds.

        Immediate annuity taxation example

        If your pension was worth £100,000 and you cashed it out as one lump sum, you could take the 25% tax-free incentive and invest the remaining £75,000.

        However, if you were to cash out and buy an annuity, you could take 25% (£25,000) as a tax-free sum.

        The additional 75% (£75,000) could be used to buy an annuity which would provide small but regular payments, making your annual income lower and qualifying you for the lower band of tax.

        What is the immediate annuity formula?

        Many annuity buyers use the below immediate annuity formula to calculate their expected immediate annuity returns in order to compare different annuity providers.

        Annuity amount x annual interest rate = Payout amount

        For this example, let’s say you are offered a rate of 7% a year.

        If you deposit £100,000 you would be paid £7,000 a year or £583.3 a month.

        If you were to live 10 years, you would have been paid £70,000.

        However, if you were to live for 20 years, you would have been paid £140,000 which would be more than your initial £100,000.

        Essentially, the longer you live, the more an annuity will pay out.

        Should I use the annuity formula?

        The difficulty with using the annuity formula to calculate your payouts is that an annuity provider may offer a rate of 7% however, with each payout received, you get part of your principal back.

        Therefore, the amount that you deposited at the start of your agreement decreases with time.

        The interest rate to calculate your payouts wouldn’t provide you with a figure representative of every payment you would expect to receive throughout the immediate annuity contract.

        What happens to my immediate payment annuity if I die?

        Unfortunately, if you were to die, the insurance company keeps the money left in your immediate annuities account.

        If you have lived longer than expected, than this might not be a problem for you as you have received more money than you put it.

        However, if you bought annuities at 65 and died suddenly at 70, based on the earlier figures, you would actually receive a negative rate of return.

        Here’s an example:

        You deposit £100,000 and are paid an interest rate of 7%.

        If after five years, you passed away, you would have only received £35,000.

        This means that the additional £65,000 that you deposited would be kept by the annuities provider.

        A specialist adviser may be able to help you avoid this as they can compare the costs of each annuity product and advise you on how much you should expect to pay upfront.

        Contact an expert for guidance about immediate annuity costs.

        What are single premium immediate annuity rates?

        Because of the correlation between age and payouts, you may find that an annuity provider may offer you a lower immediate interest rate if you are younger.

        As mentioned above, this is because you would be expected to live longer and therefore the insurance company would have to pay out more money.

        Of course, the exception to this would be if you had any health issues which could affect your life expectancy.

        What other factors can affect the rate I am offered?

        The current single premium immediate annuity rates can differ significantly between each provider depending on their terms.

        Other factors that can affect the rate you are offered include:

        • Weight
        • Health
        • Smoker vs non smoker
        • Medicines you take
        • The amount of annuities you are purchasing
        • Whether or not you would like a beneficiary (if not you would opt for a single life immediate annuity)

        Should I use an immediate annuity rates calculator?

        Online calculators and various immediate annuity tables can provide quick quotes but to make an informed decision, speak to an annuities expert, like the ones we work with.

        It can be difficult to find a clear answer online when trying to find the rate you might be offered for an immediate annuity, which is why working with an annuities expert can help.

        They don’t rely on immediate annuity payout calculators. Instead, they will have access to hundreds of annuity providers throughout the UK and can source the best rates on your behalf.

        From speaking with you and gaining and understanding about your situation and circumstances, they can calculate your monthly immediate annuity payouts with each provider.

        Speaking directly to an annuities advisor will also help you compare the terms and conditions of each policy as well as any immediate annuity fees.

        To find the best immediate life annuity rates or to request single premium immediate annuity quotes online, speak to an advisor here.

        Speak to an annuities advisor

        If you need more information or would like to talk to a professional who can explain more about long term care annuity products, immediate annuities or any other pension product, please make an enquiry or call us on 0808 189 0463.

        A annuities specialist will be happy to help with whatever questions you have and our advice is always confidential.


        This is a commonly used alternative name for an immediate annuity.

        This type of annuity provides a secure income guaranteed for life. If you have no beneficiaries, you may, although not always, receive higher monthly payments. This type of agreement would be known as a single payment immediate annuity.

        However, you may have the option for a joint payment immediate annuity, which would include an agreement which secures minimum regular payouts to your beneficiary until they die.

        As well as immediate funding for your care costs, some annuity providers also offer deferred long-term-care-annuities.

        This can provide an alternative route for retirees that do not currently require funds for their care but expect that they may do in the future.

        If you buy a deferred long term life care annuity and then no longer need care, most providers will agree to pay you annuity payments as income.

        If you would like more information about deferred long term care annuities, speak to an advisor.

        No. Pensions cannot be purchased with an annuity product as they are accumulated through funds earned through work, during what is referred to as the ‘accumulation period’. This is the duration of time you make payments for an allow investment growth to take place.

        Once regular payments begin, this is known as the ‘decumulation period’.

        Unlike other annuity products, immediate annuities don’t have an accumulation period. The insurance company (product provider) will usually start paying the income payments straight after you buy an immediate annuity.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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