29 October 2012

Paying for Care Fees

An issue of increasing concern for many families is how to pay care fees in later life.
 
Anyone with sufficient assets - and that certainly applies if you own a house - has to fund their own care, rather than having the local authority pay. That often means selling the house (although that doesn't apply if a spouse is still living there). The estimate is that 40,000 people per year have to do this.
 
There is a "12 Week Disregard" provision which theoretically allows time for a house sale. The problem is that it might take a lot longer to sell a house in the current market - and what do you do in the meantime? There is a local authority scheme to take an interest-free loan, but there are limits on this which means that it might not help.
 
The Government's Social Care White Paper includes the idea of a Universal Deferred Payment Scheme. This would provide a low interest loan while the house sale took place; it could even be deferred until the local property market improves.

Once you've sold the house you could either invest the proceeds, taking enough out to pay the care fees, or buy an Immediate Needs Annuity which will pay a regular amount (tax free if paid direct to the care home). The annuity option transfers the risk that you might live a long time to someone else -otherwise you could find yourself running out of money.

22 October 2012

Should I ... Use my Pension Lump Sum to Pay off my Mortgage?

Generally, pensions will pay you a tax-free lump sum when you first take it. One option for that is to pay off your mortgage or any other outstanding debts.
 
Note: you have to be over 55, and occupational pension schemes may not let you take your pension early.
 
That's logical if you have debts outstanding when you retire, but should you consider taking your pension early with the express purpose of paying off debts? ... perhaps while you are still working?
 
As ever, there are various pros and cons, including the fact that you may lose any further growth in your pension plan, and that the benefits your family will get if you were to die are generally greater before you take a pension than after.
 
One option is "income drawdown" where you can take the lump sum but don't have to take any income. That is not suitable for everyone but worth considering.
 
Another thing that may make it a good thing to do for some people is that you can recycle the pension income if you don't yet need it. In other words, use that additional income to pay back into a pension plan! The taxman doesn't mind since your pension income is taxable (so he gets his slice), but then you get tax relief as it goes into a new pension, and you also build up a new tax-free lump sum.
 
It works particularly well if you are a higher rate taxpayer now but expect to be a basic rate taxpayer in retirement - you get the higher rate relief now but will only pay basic rate tax in retirement.

15 October 2012

Should I ... Plan Where my Assets go on my Death?

It's easy enough to focus on what to spend your money on here and now, but not so easy to invest it for your future spending. And it's even less easy to make plans for what will happen when you die.
 
That's what Estate Planning is about. And it's an important area since the numbers involved can be pretty big. Saving a five-figure sum in Inheritance Tax (and passing it to family instead!) is not unusual.
 
So what do you need to do? A starting point could be a quick audit of the likely value of your estate. Your house is normally the largest asset. After that you need to be clear what you want to happen with your assets. Who would you like to benefit? A Will is the first step there. Of course, if you are married, then the considerations will be different.
 
Beyond that, an assessment of your likely Inheritance Tax liability is essential. There are approaches you can take which will help make sure that you pay as little as possible. But that does require some idea of your plans and expectations for the rest of your life - are you expecting to need residential care, for example? (OK, that may require guesswork rather than planning).
 
All in all, it's worth not leaving it too late in life. Some Inheritance Tax strategies take 7 years to work. Apart from that, it's good to know that if the worst should happen, you have done everything you need to.

More info and an Inheritance Tax video at Prime Time Financial's website

9 October 2012

The Middle Man Won't Go Away

There was an article in the Financial Times recently about "the middle man who won't go away". That lead me to thinking about middle men (since I am one of them in some respects).

Actually there are various middle men who won't go away. Having recently dealt with estate agents they come to mind first. When the Internet came along there was much talk about changing business models; "dis-intermediation" was the buzz word among business consultants (which was me at the time). That meant getting rid of the middle man, and estate agents seemed to be doomed. After all, why would you use one when you can do a simple search online to find all suitable properties? But estate agents are still with us. Could that possibly mean that we have discovered that they have a useful role to play after all, and that we don't actually want to live without them?

The same applies to recruitment consultants, travel agents, and financial advisers. In our role as intermediaries we provide access to financial products - as well as giving advice.

So in spite of easy access to tons of financial planning, insurance and investment information from helpful websites, I predict that there will still be plenty of people who are unwilling or unable to digest all of that, and who appreciate having someone to guide them through what they need, helping them understand as much as they want to in the process.

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