Phil said: “In financial planning we remind a newly retired couple that there is at least an evens chance of one of them living well into their nineties. On that basis it is prudent for a couple to treat all wealth and assets as family assets in retirement and where there is the choice to buy an annuity a joint life annuity should be the default option. Whilst a single life annuity will be the cheapest option, and is usually the first quote you are shown, it does not secure an income for your spouse after you are gone.
Given the risk of an income shock, a relatively cheap option would be to take out a level term assurance policy. For a non-smoking male aged sixty, cover of £100,000 would cost just a pound a day and could be money well spent to provide peace of mind”.
Darren Cooke, a chartered financial planner from Red Circle Financial Planning stressed the importance of being aware of how your income might change if one partner were to die, and of taking steps to reduce the financial pressure on the surviving partner. He also highlighted the potential for using the wealth tied up in the family home to protect the living standard of a widow or widower.
Darren said: “This is one of those situations where forewarned is forearmed. Just being aware of the change in income if one partner dies allows the couple to plan for it and consider how the widow(er) could cope. In early retirement the couple need to be careful of taking on debt, as even small interest payments could be a big part of a reduced income. Also, be careful of spending down savings too quickly as they may be better spent to support the survivor once the income drops. There is also a need to have a conversation with the wider family, to make them aware that if one person dies the survivor is going to have a significant reduction in income and find out if the family could help out. Finally they could consider the option of equity release, now or after the death, to release funds from the property that could be used to supplement income”.
Claire Walsh, personal finance expert, also encouraged couples to plan ahead and to think carefully before making financial decisions following a bereavement. Claire said: “Bereavement, particularly when unexpected, is challenging enough so I’d encourage both parties to be prepared and have an understanding of all their assets and incomes and what will happen on eithers’ death so that you each have a plan.
In shock and haste one could make rash decisions. For example, many people automatically apply to take inherited personal pensions as a lump sum, but it might make more sense to transfer this to a pension in your name and draw from this to provide an on-going income. Both options are generally tax free if the deceased was under 75. If the deceased was over 75, the inheriting spouse will pay income tax on the pension, so taking it all in one tax year you could lose much more to tax than by spreading it across multiple tax years. Furthermore, by keeping it in pension the money can remain invested and benefit from tax free growth. As pensions sit outside of estates, if you have other investments or cash savings, it may make more sense to draw from these first and leave the pension which could be inherited by future generations”.
