28 February 2011

Time to Consider Equity Release?

The current cuts to welfare spending and the numerous pension reforms may both have an effect on the take-up of Equity Release.

Welfare and benefits spending cuts of £7bn announced in the Government's Spending Review will, among other things, mean a significant reduction in local authority budgets. And that's where much of the spending on adult social care comes from.

So where can the shortfall in funding come from when someone needs to pay for their care in later life? Equity Release plans have got to be one of the options considered, even though it will be difficult to assess the impact of taking out such a plan on someone's benefits entitlement.

There will always be difficult cases where an individual is clearly let down by the system after such significant cuts, and nobody wants to see any individual disadvantaged by the changes. But it could be argued that the present retired population have a bigger slice of the pie than the next couple of generations will have.

Big rises in house prices have contributed to make those in the second half of life "asset rich". While a slow response to a deteriorating investment environment for pensions has meant that many people in final salary pension schemes went on accumulating pension rights above what their pension schemes could really afford (or are going on doing that in the case of the public sector!).

All of that is to the detriment of the youngest generations. No-one would dispute that it is difficult for first time buyers, while the likelihood of someone who is starting work today ending up with a pension at the level of many of today's retirees is pretty low.

So making use of your own accumulated assets to fund your own care (or at least improved care) seems like a good option. We just have to make sure that the safety nets remain in place for those who have neither a good pension nor their own assets.

Dispassionately, at least, it seems like it is time for Equity Release.

16 February 2011

Life Insurance in Small Businesses

One of my bugbears when running a small business previously was dealing with the bank! The bank manager never did anything helpful (like lending money on reasonable terms to help you grow the business)! Instead, at any opportunity he tried to sell us insurance of some sort - he even tried to sell car insurance at one point.

One type of insurance which was worth having, though, was life cover for the key people. In a small business if you lose a key person you are in trouble, so having a payout in the event that the worst happened is some compensation.

Since 2006 it has been possible to obtain this cover on better terms than previously. Before April 2006 such life insurance was covered by pensions legislation and potentially limited the "real" pension contributions. As a result, the life cover was often best handled by individuals who paid premiums out of taxed income.

But since that date, "Relevant Life Policies" have become available. With these, the company pays the premiums and, in most cases, these will be a business expense deductible against Corporation Tax.

So the message is - if you run a small business - or are a director - don't pay for life cover yourself - get the company to pay it and save tax!

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