My dad invested his pension in income drawdown, but he’s become too ill to manage his investments on his own and doesn’t have a financial adviser.
He hadn’t set up a Lasting Power of Attorney before his illness, so what should our family do about his pension now?
Taking financial control: How do you step in to help a loved one who can’t manage investments any longer (Stock image)
Fiona Heald, partner at law firm Moore Blatch, replies: Sadly, your father’s situation is not uncommon. Around 70 per cent of people don’t make plans to ensure some else can look after their property and financial affairs should they be unable to do so themselves.
Contrary to popular belief, nobody has an automatic right to make decisions on someone else’s behalf – even if they are related, married or in a civil partnership with them.
That is why many people set up Lasting Power of Attorney while they are still in good mental health, as this ensures one or more trusted friends or relatives are legally entitled to act for them if necessary.
Getting an LPA is certainly advisable for anyone who plans to manage an investment portfolio throughout old age, as this involves work and the kind of financial acumen you might not have as you become frailer.
Fiona Heald: ‘Around 70% of people don’t make plans to ensure some else can look after their property and financial affairs’
Setting this up is far cheaper and easier than the process you face after someone falls too ill to obtain one, so you should explore whether it is still possible to get an LPA now, although it will depend on your father’s state of mental capacity and whether he can understand what he is signing.
Assuming it is too late to get an LPA to deal with your father’s pension, someone needs to obtain authority to be his deputy instead.
This requires an application to the Court of Protection. In your case it needs to be for a ‘property and financial affairs deputy order’.
Once granted, your father’s deputy can deal with his pension company and manage other assets and any income your father holds. Your father’s deputy could also appoint other professionals such as an independent financial adviser to assist.
It is advisable that more than one person applies to become your father’s deputy. This is because if only one person is appointed, and they couldn’t act on your father’s behalf for any reason (for example, being on holiday, becoming bankrupt or death), then your father would be back to square one.
Appointments should also be made ‘jointly and severally’, which means that any one deputy is able to act independently at any time.
The Court of Protection prefers family and friends to be appointed as deputies, as opposed to the local authority or a professional, such as a lawyer. However, if there are family disagreements or an individual’s assets are complex, it can be best to appoint a professional.
Lasting power of attorney helps families keep control if illness or accident strikes
Why you need this now and how to set it up. Read more here.
The Court forms are available on Gov.uk here. They require information regarding your father, all his assets, income and liabilities, a medical certificate and a declaration by each deputy to confirm they are suitable and will undertake their duties properly.
It’s worth noting that obtaining the medical certificate can be a challenge as many NHS doctors will not complete the form, and those who do may charge up to £300.
Typically, it takes about a month to obtain all the information required. Many people find this process complex and so ask a lawyer to help.
Having completed the forms, a £400 fee is payable to the Court of Protection. The Court will take about a month to issue the formal application.
In your case, it would be sensible to ask for an urgent order so that your father’s pension can be dealt with quickly. This would include the power to appoint a financial adviser to help deal with your father’s pension.
Once the application is issued, you need to notify various family members, including your father even though he may not understand. This is to give everyone a chance to object to the appointment of a deputy if they want to.
What is income drawdown?
Drawdown schemes allow you to take sums out of your pension pot while the rest remains invested.
But this involves risk and requires ongoing management to maximise returns, avoid spending your savings too quickly, and limit taxes on your income.
Pension freedom reforms have led to growing numbers of people entering drawdown and shunning annuities, which are unpopular because they are poor value and restrictive.
However, annuities provide a guaranteed income for life with no monitoring or intervention needed during retirement, which makes having an LPA a less pressing matter although still important.
Assuming no one objects, the Court will then consider how much security the deputies need to provide. This is an insurance bond which pays out should a deputy illegally take your father’s money.
If this occurs, the insurance company will pursue the deputy. For £300,000 cover the annual premium is about £225. Approved insurer details are given by the Court.
Once the Court knows the insurance bond is in place, they will issue the property and financial affairs deputy order (the Order) to your father’s deputies along with guidance so that they are aware of what they can and cannot do.
Once the Order has been received, a separate deputy bank account needs to be set up to manage your father’s financial affairs.
The Order also needs to be sent to all financial companies where your father has accounts so they know who to deal with from now on.
This whole process takes about six months. Once appointed, all deputies are supervised by the Office of the Public Guardian to which any further fees, such as the annual supervision fee and fees for the appointment of new deputies, are paid.
The supervision fee is £320 a year if you are managing more than £21,000 and £35 a year if it is less. The assessment fee is £100 for new deputies. All fees are payable out of your father’s money.
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