Powers of Attorney – how you avoid a ‘later life financial crisis’
These days, you have more choice and control over pensions than ever before but have you remembered about setting up Powers of Attorney in good time?
For example, when you retire and open your pension pot, you can either buy an income (annuity) from an insurance company or annuity provider, or you can keep the money invested and take a regular income from it (income drawdown).
Income drawdown was first announced in the 2014 Budget and more than twice as many people now choose it over buying an annuity.
Income drawdown is generally more flexible but requires more active management than an annuity which is just set up once and then provides a set income for life.
So while it’s popular, income drawdown does mean that you have to take responsibility for managing your income during retirement. Some years you may want to take more income out of your pension pot than others to maximise tax efficiency.
For most pensioners, that’s not a problem. But what happens if you fall ill or you become unable to make decisions for yourself?
If you have made no other arrangements, your next-of-kin would have no option but to apply to the courts to take charge of your finances. This is stressful, expensive and could leave you without financial support until it is resolved.
A much better option is for you to set up a Lasting Power of Attorney. This gives a family member or friend of your choice the legal authority to make decisions on your behalf – including the management of your pension income.
Amazingly, hundreds of thousands of retirees who use income drawdown have not yet drawn up a Lasting Power of Attorney, meaning they are putting themselves at risk. Indeed, Zurich estimates that 1.7 million people could be in this position by 2025.
The time to draw up your POAs is long before you need them.
And remember, they not only give the person or people you trust the power to manage your pension but all of your financial affairs – essential if you aren’t able to.
So whether you have a drawdown pension or not, if you haven’t yet made your Powers of Attorney now is the time to do so.
If you’d like to discuss Powers of Attorney in more detail please get in touch with me today.