Don’t leave it too late to rethink your pension

IT SEEMS only yesterday but it is more than four years since pension freedoms transformed the UK retirement market.

Is there a danger then that some are getting a touch complacent in this new world of income flexibility and inherited drawdown?

While average life expectancy – now 79 for men and nearly 83 for women – has increased nobody can second guess unexpected ill-health and early death.

Even the fittest can keel over without warning.

So it is important to be prepared and make sure everything is in place should the worst come to pass.

That means having the right pension, ensuring that those you would wish to benefit really will benefit, and taking out a registered power of attorney.

Standard Life Aberdeen notes: “The onset of ill-health can drastically change retirement income needs. For some, as they become less active they may need less income to live on. At the other end of the scale, it could require additional expenditure to make adaptations to the family home or even the need to enter residential care.

“The ability to adjust income levels in retirement as needs change over time was one of the key drivers in the shift from a fixed to flexible retirement income.

“The increased flexibility of drawdown means that more decisions need to be made throughout retirement.

“Income levels may need to be monitored to keep them sustainable, or simply varied to meet changing needs or circumstances such as increased health care costs. Assets may need to be rebalanced. And there may be occasions where larger one-off withdrawals may be necessary.”

But what if those decisions can’t be made due to a loss of mental capacity?

Sadly the dementia crisis has engulfed many thousands, robbing people of the ability to think and reason for themselves.

A Lasting Power of Attorney (LPA) allows a person to nominate someone to look after their financial affairs if they are no longer able. It has to be completed and registered while they still have capacity. But it invariably makes a huge difference, allowing loved ones to ensure that income can be varied and care costs can be met.

Under an LPA your attorney or deputy is able to manage the vast majority of your requirements, but there are things out of their hands.

An attorney cannot complete a death benefit nomination on behalf of the donor. A death benefit nomination helps to guide the scheme trustees/administrators when exercising their discretion. So it’s vitally important that nominations are regularly reviewed whilst individuals are still capable.

Standard Life Aberdeen cautions: “If the client leaves a surviving dependant, benefit options for other loved ones could be severely limited without an up-to-date clear nomination – potentially frustrating what the deceased would have wanted to happen.”

Equally fundamental, not all pension schemes offer the full range of income and death benefit options. Different pension arrangements may need to be put in place, but don’t leave it too late.

Standard Life Aberdeen warns: “A loss of mental capacity could affect the ability to transfer pension benefits to a new provider. Where there is an attorney in place, it may still be possible to transfer if it can be shown to be in the best interest of the donor. A transfer to allow them to take flexible income to meet care costs is clearly in the donor’s best interest. However, it could be argued that transferring to improve the death benefits or how they can be accessed is not for the donor’s benefit.”

Clearly it’s much better to get pension savings into the right scheme before health becomes an issue.

Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice