Most people who invest a pension have no fail safe against falling ill
Originally published by thisismoney.co.uk 29/05/18
- Four out of five retirees in income drawdown have no ‘lasting power of attorney’ set up, finds Zurich
- Investing a pension involves keeping on top of funds throughout your old age
- Having an LPA set up means someone you appointed takes over if you are ill
- If not, families face court procedure and fees running into thousands of pounds
Hundreds of thousands of people are investing pensions without legal protection against falling ill, and exposing loved ones to a costly ordeal to take control of their funds.
Without a ‘lasting power of attorney’ document created in advance, families can find themselves locked out of an ailing loved one’s finances and facing a complicated court process with fees running into many thousands of pounds.
Four out of five retirees who have put their pensions in income drawdown schemes, which require ongoing management of investments, don’t have this failsafe in place, according to new research by Zurich.
It estimates nearly 350,000 people were already in this situation by April this year, and if numbers entering drawdown continue to grow at the same rate there will be going on 1.4million of them by 2025.
You can protect your finances if you become too ill to handle them by appointing someone you trust – usually a family member or friend – to take over by creating an LPA, either independently or by paying a solicitor.
Zurich warns the failure of many retirees to arrange this legal protection is creating a ‘ticking time bomb’ that could leave them facing a financial crisis in later life.
It cites figures from the Alzheimer’s Society, which says there are currently 850,000 people in the UK living with dementia, and estimates this could rise to more than one million by 2025 and then double to two million by 2051.
Alistair Wilson, of Zurich, said:
‘Registering an LPA has become even more important since the pension reforms.‘Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases.
‘Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities. The time to set up an LPA is well before you need it, and pension providers should be highlighting this to their customers.’
How do LPAs work and what do they cost?
There are two types of LPA, one covering health and welfare and the other finances and property, which allow people to appoint someone else to make decisions for them if they can no longer do so.
You can sort them out by yourself through the Office of the Public Guardian, at a cost of £82 for each one in England and Wales and £77 for each in Scotland.
However, many people use a solicitor to ensure LPAs are set up properly and their wishes carried out if they are incapacitated.
What happens if you fall ill without an LPA?
Without this vital legal document, families won’t be able to deal with finances like investments in an income drawdown scheme if the holder becomes too ill to do it, warns Zurich.
Instead, you must apply to the Court of Protection, which aims to take 16 weeks but might take up to six months, for the power to step in and help a loved one.
‘Once mental capacity is lost, it’s too late. Then courts will be involved in deciding on deputies to manage the persons affairs – this may not be who the person wanted it to be,’ says the firm.
Can you still create an LPA after falling ill?
This depends on someone’s mental capacity. Lawyer Fiona Heald explains that even after someone is diagnosed with Alzheimer’s there is often still time to set up an LPA, although the process might be different from what happens when someone is still healthy.
For example, a solicitor might make a home visit, and come at a time of day when someone is at their best, she says.
‘I need to be happy that they understand what they are signing. They don’t have to remember what they are signing, but I need to be happy that they know what they are signing, how it works and what they wanted doing. They need to understand at that time.’