Everyone choosing a drawdown pension, should consider having a ‘lasting power of attorney’ (LPA) in place when they retire. Financial advisers and their clients should be aware that drawdown, unlike an annuity, requires the person to be able to manage their financial affairs throughout retirement, until their death, and require ongoing management. Many clients receiving a pension will be unable to manage some, or all, of their financial affairs at some point during the retirement, due to physical ill-health or a lack of mental capacity.

LPAs allow a person to appoint a third party (attorney) to make decisions about their health, welfare, finance and property, if they no longer have the capacity to do so themselves. In the context of drawdown, this could include anything from managing your investments to income being redirected in order to fund care needs. The attorney is someone they trust and who knows them well – a spouse or family member.

Fiona Heald, head of the Court of Protection team at Moore Blatch solicitors, pointed out that without an LPA, a third party would not legally be allowed to instruct an adviser on any changes to a drawdown arrangement. The firm also mentioned that take up of LPAs is still “woefully low”, with current data showing that just under one million LPAs have been taken out in England and Wales since 2012, compared with around 1.5m people aged over 85 and around 5 million aged over 75. It put this down to a general lack of awareness or willingness to accept they might need one, along with the perceived and actual complexity of putting one in place; adding that these reasons should not apply to drawdown clients who must have received professional advice.

David Trenner, technical director at Intelligent Pensions, said that they require all clients over 75 to have a power of attorney, or to confirm in writing that they will not do so. “There is a huge risk to an IFA who does not get clients to complete [power of attorney].”

“We can all say that someone in a care home who has been diagnosed with dementia cannot make their own financial decisions, but this is not something which happens overnight,” he commented, adding that if a client makes a poor financial decision in their 70s it could result in a claim when they are in their 80s and cannot explain to anyone that they understood the advice.

If you want to find out more about setting up a Lasting Power of Attorney, contact Jenny at APS Legal Beverley, today.