The worst Client call (Death, Probate, and Annuities)

Saturday, 4th July 2009 11:38 - by Resident IFA

I arrived at my office as usual at 8 a.m. on Thursday. At almost exactly 9 a.m., the telephone rang. On the other end of the line was the female Partner (for 38 years) of a male Client of mine. Unfortunately, he had died after over 3 years fighting lung cancer. Now, I probably use the term ‘Client’ incorrectly. I see a Client as someone you would keep in touch with and regularly review their financial arrangements and planning. In some cases, the person simply requires one piece of advice and has no financial needs after that point. This is a case in point. The gentleman approached me after his cancer diagnosis to see if he could start to see some benefit from his Personal Pension plans. He was of an age where he could take income from his Pensions. As usual, I scoured the entire market for the highest income for him, the income being further enhanced due to his shortened life expectancy. One key thing within my recommendation was to consider his Partner’s needs after his death. This revolved around two questions: o Do you wish for your Partner to receive an ongoing income after your death? o Do you wish to guarantee that part of your income reverts to your Partner as a lump-sum if you were to die in the short-medium term? The first question was the proverbial ‘no-brainer’ for my Client, ensuring 50% of his Pension income reverted to his Partner, regardless of the fact that this would lessen his income from outset as a result. The second question was more assumptive. My advice to him (rather than a question) was to build in the longest guarantee periods possible as the difference it makes to the income payment is negligible. So, we built-in the maximum 5-year guarantee period on his ‘Protected Rights’ - that part of the Pension built up from ‘Contracting-out’ of the higher part of the State Pension scheme - and 10-years for the rest of the Pension built up from his personal contributions over the years (‘Non-Protected Rights’). What does this guarantee do? To use his situation as an example, he passed away after only 3 years of taking income. So, he had 2 and 7 years of his guarantee periods remaining. Rather than his Partner simply receive the ongoing 50% of his income until her death – as we also made provision for (as above) – she will also receive a lump-sum. This reflects the commuted benefit of the income he was still due to receive for the 2 and 7 years periods to come, thus obtaining maximum benefit before and after death, the insurer (annuity income provider) not being able to profit as much from his demise and the cessation of his 100% income/payment of 50% income to his Partner. Right, I am now on page 2 of my Word document and Blogs shouldn’t be more than a page long, in my opinion! I will move on to some Probate concerns and issues in my next offering. Until next time…