A Lasting Power of Attorney (LPA) is a legal document that allows an individual (known as a donor) to appoint one or more people (none as Attorneys) to help them make decisions on their behalf.
There are two types of LPA:
- Health and Welfare
- Property and Financial Affairs
Changes to pensions introduces in April 2015 where individuals have been encouraged by new legislation to avoid buying an annuity, and instead access their pension fund flexibly under is know as “Flexi Access Drawdown”. Whether this is advisable for most individuals or not is beyond the scope of this article, but the simplistic contrast between an annuity, which is a one off decision and Flexi Access Drawdown which is an on going reviewable structure, is indeed stark.
Most Flexi Access Drawdown Pensions will be constructed as personal arrangements, where a contract exists between an individual and a third party administrator often an insurance company. Whilst these “personal pensions” may be used for providing income for a couple, the reality is that one individual effectively has the rights over these benefits and the other, who is invariably entitled to dependants benefit, is not party to the original contract.
It is estimated that just 1% of the UK adult population has a LPA in place, meaning that whilst only a proportion of the remaining 99% will be pensioners and an even smaller proportion will be actively in drawdown, this does raise a significant risk of individuals being in a more complex contract which would generally require on going reviews, but exposed the risk of their dependant being unable to control future decisions without significant costs and complexity if the pension holder was to lose mental capacity.
Whilst it is technically possible to retrospectively implement a similar structure to a LPA after capacity has been lost, a “deputyship” as it is known is significantly more costly and complicated as it requires on going governance from the Court of Protection. Additionally where a registered LPA can be used virtually immediately obtaining a Deputyship can take months or even years.
Financial Advisers have a responsibility to look after their clients financial interests which often will extent into other areas of their life, for example, health and welfare. The effective freezing of pension assets in the event of the pension holder losing mental capacity can further exacerbated a very traumatic situation. The nature of capacity is that whilst many conditions see a gradual deterioration in mental capacity, there are common medical aliments (for example a stroke) that can radically change an individual’s health in the space of a very short time.
Wingate Financial Planning is not authorised to give legal advice but we can assist with overall financial planning, which we believe would include assisting clients wherever possible to make good long term decisions, and this would include arranging Lasting Powers of Attorney, if they do not have these documents (or similar) (under the old legislation they were known as Enduring Powers of Attorney) in place. If you have any concerns over any of the matters raised in this article we encourage you to speak to me, Steve Trinder, who specialises in dealing with Deputies, Attorneys and those who have overall concern for vulnerable relatives.