In 2001, I bought a care bond, a financial product designed to pay your care costs when you are older, for £14,577 from Scottish Amicable European.
I went through the terms and conditions with my financial adviser. I opted for a capital growth option, which means the initial invested sum is increased by 0.75 per cent a year after the sixth year of owning the bond. I understood that I could spend the money from the bond on related care costs and not just on carers.
How the bond works is I can either get a fee every year of £1,214.75 every month if I prove my condition merits it or 101 per cent of my original sum – so £14,722 – would be paid to my estate.
I hadn’t claimed any money, but then got a shock to receive a letter on my 80th birthday in February last year stating the value of my bond would decrease and by my 89th birthday would be nil and ceased entirely.
I complained about this, as not only was this a change, but I also have numerous medical conditions including chronic obstructive pulmonary disease (COPD) and heart failure, which means I have only been given 18 months to live. I have not yet decided whether to claim until I can understand what has happened with my policy.
I am on borrowed time and keen to have my finances sorted. I have written 27 letters and made three formal complaints and have got nowhere. I’m distressed at having to spend my last months this way. Can you help me find out why Prudential did this and what I can do? David Cemlyn, 81, via email
Grace says: Firstly, I am very sorry to hear of your diagnosis and am sending you my best wishes.
After you got in touch about your case, I really wanted to help as it seemed remarkably unfair that the details of your bond had changed after you took it out.
How the bond works is, it is invested in various funds. The payout you receive was conditional on the performance of the investment. While this was explained to you, I am not sure you fully realised this – however, it is a crucial point.
You were advised on purchase of the plan by both Scottish Amicable and your adviser that the initial investment would provide long-term care cover throughout your lifetime.
However, since then, expectations of future growth have changed and the predicted rate of growth was higher than the actual growth that has been achieved to date. You will have received letters throughout the years explaining the change, but likely did not take much notice until you got older and the care needed was more pressing.
These type of bonds were already falling out of favour by 2002, according to Zoe Taylor, a financial adviser I spoke to, because of disappointing results. A myriad of issues were discovered, including poor stock market performance and issues with underwriting and claims management, with definitions of eligible claims subject to interpretation, and some claims being paid that didn’t actually meet the original definitions.
Prudential took over running the bond from the Scottish Amicable European in 2016. When it first took over, you received a confusing letter stating you were no longer going to get a guaranteed income for life if you started claiming, rather only until your 88th birthday – contrary to what you thought was stated in the terms and conditions which said up until your 95th birthday.
As your diagnosis stands, sadly you may not make it until your 88th birthday, so you have decided to start considering making a claim now and want to ask for a £1,000 draw down as permitted under the terms and conditions – as you understand them – to offset the cost of the mobility scooter and stair lifts you have had to buy to cope with your disability. You believe this is only fair, even though it is not direct care, however you have not yet made the claim until you are clear on your options.
You have made a formal complaint, as well as wrote 27 letters and called numerous times, about the terms changing, but have found that it hasn’t got you far, so you contacted me.
I got in touch with Prudential and asked why the bond now only covers your care until your 89th birthday, rather than 95th. It said the value of your bond had decreased over time, as a result of changing economic conditions, and this allowed them to make this decision.
However, if you do make a claim before then you can claim a monthly £1,200 for as long as it is needed. If received for the time you have left – 18 months – this would add up to more than £21,000.
If you wanted to cash out entirely, you could receive a value of £11,463.51, lower than if you took the amounts monthly and on the provision it was accepted. You say you are tempted but are concerned that if you do need care, £1,200 a month would come in handy.
This unfortunately was not the outcome you desired but you were happy to at last get a comprehensive response to your queries, something that had been lacking over the past year. It does seem that the investments performed much worse than you were led to believe they would, which I believe is the crux of the dispute, but unfortunately, something that Prudential could not control.
It may also be worth consulting with your financial adviser if you have concerns over the suitability of this choice as it could be the case this was not the best plan for you from the outset, and unfortunately, you are only finding out now.
One benefit is that the death benefit, which says Prudential will pay out 101 per cent of the cover remaining in your bond, will remain and so your next of kin should at least receive these funds upon your passing.
I am sorry I couldn’t help more, but you can take your case to the Financial Ombudsman if you see fit, although I doubt you will want to deal with that hassle at this point in time.
You may be interested to know there has been a successful judgement for a 90-year-old who had a Scottish Amicable Long Term Care bond since 1995. The client was awarded more than £20,000 from the Ombudsman back in 2007 and the adjudication appears to have been made given the client’s lack of experience, inappropriate risk category and the lack of a thorough recommendation being given.
Additionally, Taylor said if you are not claiming Attendance Allowance, you might wish to look into this to boost your resources. It is a non-means tested and non-taxable benefit for people over state pension age who have disabilities of some kind that could require additional support. This is a very underclaimed benefit, often because people think it has to be spent on a carer, which isn’t actually true.
You qualify based on the help you need, not the help you actually get, and many people use it for other types of support, like befrienders or home help, or equipment to help them stay independent. You can apply online, by phone 0800 731 0122, or contact Age UK who will help you to complete the form. If eligible, you can expect to receive between £3,541.20 and £5,291 a year.
This case serves as a warning to other people taking out such policies that they read and check the fine print carefully as well as investigating where the investments are made.