Why LPA uptake should be higher for drawdown clients
Current data shows that the correlation between drawdown clients and LPAs could be stronger. Recent changes to pension access demonstrate the importance of future planning for those managing their finances.
As previously reported by Today’s Wills & Probate, in April this year, greater pension freedoms became available for those age 55 and over. However, there is growing concern that those choosing a drawback option are not considering creating a Lasting Power of Attorney (LPA) for property and financial affairs.
Unlike other retirement options, the drawback choice requires a person to manage their finances through retirement until death. The worrying disadvantage to this is that many of those entering old age may lose the capacity to manage their finances due to ill health. Without an LPA, responsibility for financial management may be passed to a deputy allocated by the Court of Protection, rather than an attorney of the person’s choosing.
Recently, Moore Blatch solicitors have spoken out about the importance of creating an LPA. They say greater awareness is needed about the importance of the documents, particularly for clients entering retirement age in light of the pension freedoms.
The advantage to an LPA is that a selected third party is able to direct funds towards management of care for the person taking the drawback option, who may no longer have the capacity to do so themselves. Also, the selected attorney can help to choose the best option for future investments.
Fiona Heald of Moore Blatch has warned of the repercussions of not completing an LPA, stating that her firm would expect ‘virtually everyone who has chosen to manage their retirement finances personally to have one’.
However, data figures reveal this is not happening in all drawdown cases. Recent research into LPA uptake has shown that, despite an increasingly larger elderly population, under one million LPAs have been created since 2012. This is in direct contrast to the surge in the number of people selecting drawdown; something which investment and pension software provider, Selectapension, noted increased by 57% after the pension reforms in April.
There are various reasons why LPAs may not be as common as they could be. Understandably, one frequent issue is that many people do not want to acknowledge the possibility that they may lose mental or physical capacity during old age. Also, many people are simply not aware of the documents and the important impact they could have upon their future choices.
Julia Abrey of Withers law firm advises those considering an LPA to seek legal advice, stating that they ‘can be quite complicated to draft correctly’ and warning that the Office of the Public Guardian may reject those drafted wrongly.
The pension freedoms have granted access to a greater level of control for those in our aging population. However, further control can be attained by creating an LPA, providing peace of mind for both the client and their family.
Do you believe there is a lack of awareness about LPAs? Do you think they should be more actively encouraged for clients taking a drawdown option on their pensions?