Q. My husband and I are getting divorced. I will be reliant on the maintenance he is due to pay me on behalf of our two children, who are 5 and 7, until they are grown up. I feel vulnerable if anything happens to him during this time.
A. Most solicitors advocate a clean break financial settlement if a way can be found, but often this is not possible, especially if there are children involved. If the divorce has been amicable, then it might be possible to suggest a life assurance policy for the benefit of your children over the next 15 years or so. (This is actually a good idea even where there has not been a divorce). He may also want to consider insurance on you, as his ability to work would be affected if anything prevented you from looking after the children. Family Income Benefit is a type of life cover which pays an income for the remaining term, and would be ideal for this scenario. You may also wish to suggest income protection insurance, which provides an income in the event of being unable to work due to ill-health or disability. This is another type of insurance which everyone should consider, not just those getting divorced. You will need your ex-husband’s co-operation to set the life policy up as he will need to sign health declarations. He might want the policy to be in trust for the benefit of the children to make sure the proceeds are used for them. This is one of those things where you will need to come to some agreement, usually as part of the divorce settlement. I recommend you speak to a Chartered Financial Planner with experience in this area. Your solicitor may be able to recommend one to you.
Q. I am 61 and was planning to retire later this year. I have pension schemes with several former employers and have been obtaining projected pension figures. Unfortunately I have discovered that one of my former employers has moved their final salary pension scheme into the Pension Protection Fund. Do I have to wait until I am 65 which would have been the normal retirement age to get this?
A. Yes is the simple answer. When you reach your scheme’s normal retirement age, they will pay you compensation based on the 90 per cent level subject to a cap. The cap at age 65 is, from 1 April 2014, £36,401.19 (this equates to £32,761.07 when the 90 per cent level is applied) per year. Until you reach normal retirement age and your compensation is put in payment, your compensation entitlement will rise in line with inflation each year, subject to a cap. Once compensation is being paid, then payments relating to pensionable service from 5 April 1997 will rise in line with inflation each year, subject to a maximum of 2.5 per cent. Payments relating to service before that date will not increase. From 30 April 2013, you may be able to take your compensation at a later age than your normal retirement age. If you defer taking your compensation, it will receive an actuarial adjustment to reflect the period it is postponed.
Q. I am considering my options for a mortgage and have heard of Offset Mortgages. Could you explain what these are please?
A. This type of mortgage is worth thinking about if you have cash savings. These deals work by ‘offsetting’ your cash savings against what you owe on your mortgage, therefore reducing the overall amount of interest you pay. So, if you have a £100,000 mortgage and £20,000 in cash savings with the same institution, with an offset you’d only pay interest on the £80,000 difference, which means you may be able to pay down your mortgage more quickly. You do not receive interest on your savings of course, however because interest charged is nearly always more than interest earned this doesn’t really matter. I recommend you speak to an Independent Financial Adviser specialising in mortgages to see which type of mortgage would be most appropriate for you.
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
