Many people choose to be discreet about their financial affairs. Few people like their friends or family to know how much they are paid each year, or how much they have saved or invested. So when a financial adviser asks a client to consider appointing a Lasting Power of Attorney (LPA), the idea can be rejected, and it is easy to see why.
A Lasting Power of Attorney gives legal permission for an ‘Attorney’ to take over control of aspects of your affairs; either for decisions regarding your health and wellbeing when you are no longer able to make them, or decisions relating to your property and finances. The thought of entrusting your personal wealth in someone else's hands understandably makes many people nervous. But it should be considered as a part of your overall wealth planning.
The pension freedom reforms in April mean that those over the age of 55 have many more choices for their pension income. You are no longer required to buy a pension annuity or even enter into a pension drawdown contract, retirees can now withdraw their funds to save, spend or invest as they wish. But whilst an annuity provides a guaranteed income for life and requires no management by the retiree once set up, these other options will require more input – some may involve investment risk, but even without this, some level of ‘management’ will be required to ensure that the money doesn't get used up too quickly.
It follows that a drawdown scheme, or other savings and investments which are being used to provide income or lump sums, requires the person to be able to manage their financial affairs themselves throughout retirement, and until their death. Unfortunately, not everyone can, and setting up a Lasting Power of Attorney is a precaution in case they become unable, either physically or mentally, to continue to do so.
An Attorney would usually be a person that you trust, such as a family member or close friend. They don’t have to be a pensions or investment expert, but they can work with your financial adviser to make sure that changes to your policies can be made, if required, to meet your ongoing needs.
Appointing a LPA is not just important for when you reach old age. If you developed a serious illness or were involved in an accident, not even your spouse would be able to make important financial decisions regarding your pension or your individual investment arrangements on your behalf without going before a Court of Protection for permission. Bearing in mind your LPA is likely to be a nearest and dearest, the moment when they are called upon to act on your behalf is often at a difficult time for them as well as for yourself, so appointing them early and having clear plans in place is advised.
For these reasons, your financial adviser may raise the subject of a Power of Attorney with you, not because they feel you are unable to deal with your own affairs, but because it is all part of planning ahead.
You can set up a LPA yourself and the Government provides a guide on how you can do this on their website. The cost involved is around £110. If you want the reassurance that your LPA has been set up correctly, then you may wish to instruct a solicitor to do this on your behalf, and your financial adviser will be able to suggest companies who can do this for you.
To find out more about preparing your finances for the future, please say hello, we’d love to help.