Q. I have a Lasting Power of Attorney (LPA) to look after my Mothers financial affairs. She is 85 and up until recently has been fiercely independent. She lives in her own home which is owned outright. With her health starting to fail I have started to use the LPA to take over the running of her finances. I was amazed to discover how little income she has with just the very basic State Pension and a small Widows Pension from my late Fathers former employer’s scheme. She also only has very modest savings. I believe she should be entitled to some additional State Benefits which she has I think been too proud to claim. As I am now in charge of her finances I am minded to see what she might be entitled to. Presumably having the LPA I can now make these claims on her behalf?
A. Age UK state that there are about 4 million older people that are entitled to a benefit called Pension Credit, yet about 1 in 3 of those eligible are still not claiming. It sounds as if your Mother falls into this category. With the LPA you will be allowed to make a claim on her behalf. There are potentially 2 types of Pension Credit. The first is Guaranteed Credit where if as a single person her total weekly income is less than £148.35 she may qualify to have her weekly income made up to this amount. The second is Savings Credit where if her income is less than around £190 per week and if as you say she only has modest savings she could qualify for up to a further £16.80 per week. If you are successful in getting Pension Credit this could open up entitlement to further benefits. You should contact the Pension Credit Helpline on 0800 991234 to see if your Mother is entitled to Pension Credit in the first instance.
Q. I am about to retire and take my pension benefits. My main need is as high an income as possible without taking any investment risk. I was therefore intending not take any tax free cash from my personal pension but use the full fund to purchase an annuity. However, a friend has advised me that even if I need fixed income, I should still perhaps consider taking the tax free cash and purchase another type of annuity with it. Sounds a bit odd to me, but what do you think?
A. Whilst I normally warn against taking advice form a “friend” in this case he or she might have a point. Payments from a pension annuity are taxed as income therefore all the payments to you are assessable for income tax. You have the option of taking a lower income and a lump sum tax free. If you take this tax free lump sum and then purchase another type of annuity, known as a Purchased Life Annuity (PLA), then some of the income that is paid to you is treated as being a return of your capital, which is tax free, and the balance is treated as interest which is taxable. Consequently you pay less tax on income from a PLA than you would on income from a pension annuity. I would recommend you take advice from a Chartered Financial Planner who specialise in pensions, to first of all explore whether your intention to use all the fund to buy a fixed income is the right one and secondly, whether a PLA would work out favourably for you.
Q. I am in the process of getting divorced. My wife is staying in the marital home with our two children, who are 14 and 12. We want to transfer the house and mortgage into my wife’s name. Although she only works part-time, she receives tax credits and maintenance from me, meaning her overall income is £25,000 per year. Her solicitor is saying she won’t be able to get a mortgage for £50,000 and therefore needs more of our joint savings to reduce the mortgage. Is this right? It seems unfair because I will then struggle to buy anywhere myself.
A. This is becoming a more common problem, as mortgage lenders are tightening up on the affordability criteria for lending. Although your wife will have total income of £25,000pa, lenders will often disregard any of the income which will cease before the end of the mortgage. For example, any working tax credits which cease when the children are 18 are often excluded if the mortgage extends beyond this date. Also maintenance relating to the children is often overlooked for similar reasons, and maintenance for your ex-wife may not be considered until there is a court order in place. It may be worth asking a mortgage broker who can advise on alternative lenders with different criteria and ways of treating the different types of income.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
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