10 Preparing for a long retirement

Planning for inheritance

It’s a good idea to make or update your will so you can decide who to leave your money, property and possessions to. If you don’t have a will the law dictates who gets everything. Pension plans usually have arrangements to pay some of your pension to a spouse or other dependents, so it’s important to check that you have given your pension provider up-to-date details of your dependents.

You will recall from the previous section on bereavement that if you have defined contribution arrangements and you die before 75 years old, anything that is left in your pension pot or in a drawdown fund can normally be passed on tax-free to beneficiaries. If you are 75 or over, what is left in your pension pot can still be passed on, but the beneficiary would be liable to pay income tax.

A link is provided at the end of the course to learn more about making a will.

Increasingly, people are also giving ‘living inheritances’. This is when you give beneficiaries money, property or other bequests while you are still alive. Some people use equity release for this purpose. Again, there may be tax implications with this so it’s important to get advice. Under the current Inheritance Tax exemptions you can gift up to £3,000 a year, tax free. Larger gifts to beneficiaries should avoid any liability to inheritance tax if they occur at least 7 years before you die.

Planning for care

It might seem a long way off, or you might think it will never happen to you, but it is worth understanding a bit about the potential consequences of long-term illness or infirmity, and what financial support you can expect from the government in these circumstances. While approaching retirement this knowledge may help you in arranging care for your own parents or other older relatives. But the knowledge gained might eventually help you too – but do look out for any future changes to government policy on social care and their impact on you. At this point, you could think about what you would do if you had to pay for care needs now. Perhaps equity release could help here if this has not been used previously?

Planning for decision-making in later life

You might also want to consider putting in place a lasting power of attorney (LPA) to enable others – usually family members – to take decisions about your finances or well-being if you’re unable to do so. The Scottish equivalent is a continuing power of attorney and in Northern Ireland it’s an enduring power of attorney. As you get older you may experience cognitive decline or dementia, making it difficult to make complex financial choices. These powers of attorney do not come into effect until necessitated but save your family or others having to go to court in order to manage your affairs. You can find out more about powers of attorney via a link provided at the end of the course.

This reality of ageing also means that active financial planning and decision-making can become challenging. It may, for example, mean that a guaranteed income rather than an investment-backed product may be better in later life.