31 March 2011

Equity Release Experience

I'm still convinced that Equity Release plans will have an increasingly important role to play in retirement finances. Increasing costs, longer lives, and the reducing value of pension income is likely to squeeze more and more people into thinking about other options like Equity Release.

Sometime the need is to cover the essentials of life, while for others the incentive is is "something extra". Here is LV='s experience of the main reasons why people choose Equity Release:
  • Maintain standard of living - 28%
  • Home improvements - 23%
  • Pay bills / clear debt - 20%
  • Mortgage repayment - 15%
Like every other financial product, Equity Release is not suitable for everyone. It may be suitable for some people only after they reach a certain age, while certain types of Equity Release product may not be appropriate for all - but it is an important tool in the financial planning toolbox.

16 March 2011

The Lighter Side of Tax Relief

The Office of Tax Simplification was set up to review tax reliefs, exemptions and allowances. Here are some of the more "interesting" results...

Tax relief is currently given on breakfast provided for cyclists on a designated cycle-to-work day. Proposal: scrap.

Do you remember Luncheon Vouchers? Up to 15p per day they are currently a tax free benefit. Proposal: replace with a fixed allowance.

By a historical quirk (there seem to be lots of them!), Divers are always treated as self-employed for income tax purposes (apparently). Proposal: scrap.

Income tax relief is provided for players in the Champions League Final - a condition of hosting the game specified by UEFA, apparently. Proposal: keep (demonstrating that football has an even greater influence on the Government than Europe).

Late night taxi journeys can get you tax relief provided you are "later than usual". Proposal: scrap.

Black beer (from Yorkshire) and Angostura bitter (from Trinidad) have been exempted from excise duty since 1930 due to their supposed medicinal benefits. Proposal: scrap.

Free coal for miners and their widows - currently tax free. Proposal: scrap.

Insurance premium tax relief is provided for Channel Tunnel rail services. Proposal: keep, because this is also provided for cross-Channel ferries.

3 March 2011

Financial Protection for over 50's

We generally think of financial protection - life insurance, health insurance - as being for younger people. It's certainly true that a young family with a mortgage have the greatest need for life cover in case the breadwinner is no longer there, for example. But there are situations where policies are also useful for older people. Here's some examples.

Self-employed people of any age don't have an employer who will keep on paying them if they are off sick. Their own sickness cover can easily be provided by purchasing Income Protection Insurance (previously called Permanent Health Insurance). Like most similar insurances the cost increases as you get older, but particularly if you have dependants it would be important to have.

These days, many people have mortgages continuing up to (and sometimes beyond) retirement. It will depend on circumstances, of course, but if a breadwinner dies and their spouse has no income of their own, potentially they could have to sell the house. So Term Assurance whose cover ends when the mortgage ends may still be the best approach. It can also be used to cover other loans, as well - who will finish paying for the car or the conservatory if you die prematurely!

Critical illness policies inevitably get more expensive the older you get, since the likelihood of making a claim increases. Nevertheless they have their place, particularly if you take one out earlier in life.

Whole of Life policies are likely to have a different purpose. These pay out only on death, whenever that may occur. In particular, for older people they can be useful to pay Inheritance Tax. It may be impractical to reduce an IHT liability to zero (most of the estate's value could be in the house, for example). So making plans to pay the expected IHT without waiting for probate is often the best approach.

New Endowment policies are unlikely these days, but many people still have these which were often taken out to cover mortgages. As well as the life cover they have an investment element (which is what gave them a bad name).

Private Medical insurance of various types increases in significance as we get older. Generally these policies give access to private treatment, whether in NHS hospitals or elsewhere.

Long Term Care insurance will provide some financial support in the event of needing to move into long term care in later life. There are not many providers of this, and costs are high, but it can provide peace of mind.

1 March 2011

Unisex pricing for insurance

The European Court of Justice have today ruled that insurance premiums cannot be set based on gender.

This is an extremely significant decision (although not entirely unexpected). It's small comfort that its implementation has been delayed until December 2012 which at least gives the insurance industry some time to get things organised.

In practice it means that:
  • car insurance will be more expensive for women and cheaper for men
  • life insurance will be more expensive for women and cheaper for men
  • critical illness insurance will be more expensive for men and cheaper for women
But most significantly from my perspective...
  • Pension annuities will be more expensive for men, so pension income will be reduced (that's because men die younger so their annuity purchase didn't have to last so long, so they got more income for their money) - a figure of 8%-10% more expensive has been suggested which means that much drop in pension income. How an un-elected body is allowed to reduce the value of the majority of men's pensions at a stroke with no recourse is quite amazing! (final salary schemes are not affected)
Whether all of that is "sensible" is a difficult question. I suspect it was an unexpected side-effect of anti-discrimination legislation. Removing bias might be regarded as a good thing, but some of the current differences are more to do with biology than bias and it's madness to ignore that!

So whether anyone will be better off after the changes (other than those who like to blindly tick the anti-discrimination box regardless of the real impact) remains to be seen.

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