Article by Phil
According to L&G, pensioner financial advice is badly needed with a quarter taking their pensions too early.
The report in conjunction with Turn2us debt charity found that:
- 27% didn’t take any pensioner financial advice before withdrawing their lump sum.
- 10% withdrew their whole pension pot in one lump sum.
- Whilst 60% took less than their 25% tax free lump sum.
- 46% took their lump sum just because they could according to the survey.
- 30% took the money for essential expenses.
The problem with not taking advice is that people can create unnecessary tax bills for themselves by withdrawing too much at once. Especially if they don’t need it. They might also be affecting their entitlement to future benefits by taking a large lump sum, not to mention losing out on future growth in their pensions by spending rather than saving.
Delays with Probate
As well as the problems already identified, the new pension rules are likely to cause delays in probate settlements. With pensions being included in an individual’s estate from 2027 further declarations will have to be made as part of the probate process. With grants of probate taking over a year already up by 100%, things are only likely to get worse. Professional pensioner financial advice can help to reduce these future problems by helping with your inheritance tax planning needs.
The overall cost of “dying” is now just under £10,000 taking into account average probate costs and funeral costs. Funeral costs alone have risen again to an average of £4,285. Doubling over the last 20 years.
The price of divorce
Away from pensioner financial advice, although relevant to some, whilst Christmas and New Year are well behind us now, but for some solicitors it’s their busiest period. That’s because so called “divorce day” was on the 6th of January. That’s the date when solicitors are busiest dealing with new divorce applications. It seems that Christmas is often the final straw for some relationships.
But new research by Legal & General suggests that the number of divorces are reducing. By up to 17% over the last 5 years. Sadly, not because couples are happier these days, but because they are having to put off their divorce because of financial pressures.
According to the research:
- 13% of couples delayed their divorce because of concerns about losing income. With incomes dropping by 30% after a divorce.
- Another 12% because of increased living expenses making it harder to separate.
- Plus 12% can’t afford the cost of a divorce, at an average of £2,500.
- 23% of women also forget to add pensions into the value of the divorce, with most just considering the family home as the main asset.
Only 7% of couples use a financial advisor, despite the fact that 40% think that divorce settlements are unfair.
Unmarried Couples
Things can be even trickier for co-habiting couples who are not married, because the law offers no protection to either party when it comes to a breakup. There is no such thing as “common law” marriage, despite the fact that most people seem to think that there is.
With 5.5 million people co-habiting, this affects a huge number of people.
On separation the legal position is that each party will keep the assets that are in their own name. That includes pensions, property, investments etc., even if the other party has contributed to the buildup of these assets. It’s all about whose name they are in. Interestingly, Islamic marriages are not considered a legal marriage, unless there is a separate civil ceremony.
The best way to avoid this situation is to make sure property is owned in joint names along with bank accounts and investments where possible. Ultimately a Cohabitation Agreement is the best way to achieve parity. Remember, the rules also apply in inheritance in that unmarried partners have no legal rights to assets unless rights are included in a Will.
It’s best to take specialist legal advice.
Pension Gap
That also leads back on to the subject of pensioner financial advice. One of the factors causing pensioner poverty, especially for women is inequality in divorce and separation settlements. Other factors include the time women often spend outside of work looking after children and acting as carers. Whether parents owned their home and were able to pass on wealth is also an important factor.
