Q. I retired before the new flexibilities came out in April this year. I have a pension annuity and have heard that I might be able to sell it, is that correct?
A. It has been widely publicised that this may be an option from as early as April 2016. This was obviously announced under the last parliament and you could be excused by thinking this could be derailed with the new government. However, the new Pensions Minister, Ros Altman, has already announced strong support for a new second hand annuity market, so perhaps it will actually become a reality. Of course, even if it becomes a reality, it doesn’t necessarily follow that it will be a good idea for everyone, and each case will require careful consideration and advice. My initial thoughts are, annuity holders should not get too excited just yet as the terms of any annuity sale may not provide good value for money, but you never know!
Q. My partner and I are considering getting some life assurance as we have recently had a little girl. What would you suggest, and how much would it cost? We are both 27.
A. If you have a mortgage and any other debts, you would probably want these to be repaid with a lump sum. This could be in the form of a joint life term assurance policy, or mortgage protection policy. As a guide to costs, a joint life mortgage protection plan, where the sum assured reduces as the loan is gradually repaid, would cost around £7.12 per month for a £100,000 policy over 25 years, but you will need to tailor yours to your actual situation, and it is likely this would have been addressed at the time the mortgage was taken out. Including “Critical Illness” cover, to pay out if either of you suffered a serious illness like a stroke, cancer, heart attack etc increases the premium to £24.76 per month.
Once the liabilities have been repaid, the surviving partner (and your little girl) will need funds to live on going forward. This could either be in the form of a lump sum to be invested, or a monthly amount. This would either replace the earnings of the person who has died, or possibly pay for childcare to replace a stay-at home parent. The most cost effective way to take out life assurance is Family Income Benefit. This would pay out a monthly amount for a set period of time, until your little girl is, say 21, and has finished at university. I am assuming that you are not married. This could either be set up on a joint basis, or you may consider two single life policies, each written in trust for the surviving partner and your daughter (and any future children). This means that in the terrible scenario whereby you are both killed in, say, a car crash, double the amount would be paid out.
To provide an income of £2,000 per month for the remainder of 21 years would cost £11.18pm each, or £19.50pm for a joint policy, but bear in mind this pays out only once if you both die.
For further information, and to get advice about what level of cover is suitable for your particular circumstances, I recommend you consult a chartered financial planner. It is also very important to each write a will and keep it up to date. Not only does this make the financial side of things far easier to sort out, particularly if you are not married, but it enables you to appoint who you would want to look after your children if the worst happens.
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.
0191 217 3340
