Mother-in-law has decided to sell up large valuable home and move to up market expensive nursing home. The family are trying to figure out whether it's worth her trying to buy out the risk that she survives to
100+ and runs out of capital. She's not an "impaired" risk, as far as we can tell.
I've found no annuity tables that extend beyond age 85. Providers who say they can quote for a 90 year old refuse to do so other than via an IFA (ugh) and don't seem to want to understand that at this stage all we're looking for is a ball park life expectancy number - the rest we can quite easily work out for ourselves.
Does anyone have, or know how I can find, an annuity table that goes out to age 90 (or beyond)? Or is the market just too thin at that age?
Very quick & rough calc on a mortality table I had lying around for a female aged 90, gave life expectancy around 4 years. But I wouldn't be surprised if any company quoting for this business added a fairly hefty loading to the annuity price ...
Thank you. That's the first solid number I've been able to find after a week of searching; and of course it's right in the mid-range of what we were expecting :-) Can you reveal your source?
Absolutely. The adverse selection (?) risk for them must be pretty severe at that age.
I used a standard mortality table called PA(90) - this is not the most up-to-date table now, so if anything I might expect the 4 years to be an underestimate...
[I tried various interest rates between 0% & 10% and, unsurprisingly for a
90-year-old, all rates came out close to 4 years.]
Quite possibly :-) I was trying to steer clear of anything that clouded the basic gamble on life expectancy; am I right in assuming that a care annuity would simply add a touch of indexation, or is there more to it? I think I saw somewhere that the tax treatment might be slightly more beneficial, but for a 90 year old, virtually all the payments under a standard PLA are treated as a return of capital anyway, aren't they?
Um, very briefly. She's already 90, and she needs immediate capital to income conversion to fund immediate nursing home costs. She could, I guess, buy an annuity that didn't start paying out for, say, another couple of years, and eat into her own capital in the meantime. Why would that be a better bet than an immedate annuity?
Thanks again - that led to a frustrating couple of hours trawling around all the references to PA90 (of which there seem to be many), but nothing leading to the tome/table itself. Is this the actuarial equivalent of the holy grail, with which the great unwashed joe public are deemed unworthy to come into contact? Can you tell me who or what publishes it?
Without knowing much about these things and having little idea of the costs involved - because in theory, the less likely it is to be used (according to the mortality figures) the lower the cost should be. Insurance companies are going to add on a safety margin & a profit margin, but if her own capital is going to run out at 100, she requires some kind of age unlimited annuity to cover that risk. I notice that some policies refund premiums paid if death occurs in the deferred period.
I was thinking that it might be cost effective to use a deferred annuity to cover her if she survives beyond, say, 95, whilst using the interest & capital from existing funds to cover her to 95. It depends what you aims are, the capital sum and the cost of annuities.
There is no such thing as a standard mortality table in the sense you mean it. There are lots of problems with the table you quoted: - the table relates to group scheme pensioners rather than purchased life (the latter has lower mortality) - it is only a projection with a base date around 1970 or something like that (sorry but can't remember the actual year) - the projection year was 1990 - we are now in 2003 - the projection was rather bearish i.e. mortality has proved to be much lower - the end of any mortality table is crap because there is no credible experience
Using IFA92(C 10) [this projection also probably overstates current mortality] gives you something around 5 years. The insurer will almost definitely add something on for the lack of any credible experience and therefore the high degree of risk. Then add in the insurer's expenses, cost of capital, profit etc. and you are not likely to get that much of an annuity.
On reflection, I think you might be right. If she's got the capital to self fund until 95 (or even longer), then she really only needs to put a cap on the risk that she survives beyond that point. Paying over a chunk of that capital, simply in order for a provider to return it over the first five years, smells of value leakage - IFA's taking fees, and conservative investment assumptions being two that immediately spring to mind. Plenty of food for thought :-)
Don't be silly. You have no idea of "the sense [I] mean[t] it". In the sense in which I *did* mean it, a "standard mortality table" is one which is published by a recognised authority as being useful to base calculations on. This definition covers PA(90).
"No Flipping" wrote
I do not dispute this. But for the purpose of producing a very rough-and-ready quick quote for the OP, it served its purpose.
"No Flipping" wrote
Agreed. I used this table because I happened to have a source quickly available, and at least it was not an assured lives table! Of course, there is not a huge amount of difference, and the OP appeared to be after ANY figure that might be reasonable, which he could get hold of!
"No Flipping" wrote
Actually, it was based on deaths during the three years 1967-70. Projected forwards to 1990. [Ie mortality experience at the same time as that for "standard mortality table" A1967-70, used for assured lives.]
"No Flipping" wrote
Agreed. Hence my comment earlier "this is not the most up-to-date table now, so if anything I might expect the 4 years to be an underestimate".
"No Flipping" wrote
True, which is why I have not held-up my answer of 4 years as the one-and-only true answer. How could anyone?
"No Flipping" wrote
Hmmm. 5 years? OK - looks like my estimate of "Very quick & rough calc ... gave life expectancy around 4 years", was extremely reasonable.
"No Flipping" wrote
Agreed - which is why I added "But I wouldn't be surprised if any company quoting for this business added a fairly hefty loading to the annuity price".
"No Flipping", - Are you a new actuarial student, by any chance?
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