Every three minutes, another person in the UK develops dementia. The chances of mental illnesses tend to accelerate as people get older. The World Health organization (WHO, 12 December 2017) claims that 15% of people across the world aged over 60 have some symptoms of mental disorder.
Unfortunately, most people fail to account for this increased risk to mental health in retirement. Retirement plans are so focused on expected returns and draw downs that families and loved ones are left unprepared when an elderly person becomes mentally incapable of managing their estate.
By 2037, there could be as many as 9 million unpaid carers across the UK, many of whom will be unable to dip into their elderly friend or relative’s bank account to pay for their care (Harriet Meyer, the Guardian, 9 June 2013). A legal document that can prevent this terrible situation is known as a lasting power of attorney (LPA).
A LPA is a legal document where someone (while they still have mental capacity) nominates a trusted friend or relative to look after their affairs if they lose this capacity. Having an LPA in place can, for example, allow a loved one to adjust the investment choices of a retirement savings account, disinvest some of the investments to pay for immediate care, designate funds to a drawdown, adjust the level of income being drawn, or stop income payments altogether. The carer can also sell your property and pay your bills on your behalf. None of these would be possible for a third party without a LPA (gov.uk).
LPA don’t just have to be focused on finances. A special LPA can be created for health and welfare alone. This seperate document allows a third party to make decisions regarding daily routine (washing, dressing, eating), medical care, moving to a care home and deploying life-sustaining treatment.
A financial LPA doesn’t give a carer any rights over your health and welfare and vice versa.
The versatility and simplicity of the LPA makes it a powerful tool that deserves a spot on all retirement plans. This legal instrument is designed as a precautionary fail-safe, which means it is a lot easier to implement when the donor is healthy and has full mental capacity. With this in mind, setting up a LPA should be done sooner rather than later. A Lasting power of attorney (LPA) in England and Wales has no legal standing until it is registered with the Office of the Public Guardian.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.