Changes to the rules that govern how you can take your pension

In April 2015, new pension rules come into force. These changes, based around the Chancellors budget of 2014, will have a wide ranging impact on many people taking money out of their pensions.

The rules affect those with a defined contribution pension; usually referred to as a Personal Pension Plan. The change of rules could also apply to those who have a funded defined benefit pension scheme but not those who have an unfunded scheme.

The changes to pensions have been hailed as being revolutionary; ground-breaking and even exciting!

There are so many changes and implications that it is impossible to cover them in one blog.

We therefore intend to issue a series of blogs and updates with each one dedicated to a particular strand of change to the rules. For example, we will look at

  • Who stands to benefit from the proposed pension changes of 2015
  • Can I cash all my pension in (and buy a Lamborghini)
  • How a pension can be used for intergenerational planning
  • How a pension can be made to provide a higher level of income than would have been available under the old rules and what impact this might have overall
  • Why making the right decision at the outset is so important and the dangers of making a wrong decision
  • How to be smart about accessing a pension to take maximum advantage of the 2015 changes
  • Why it is so important to check who is nominated as your beneficiary when you die
  • Why a pension may be a better proposition than an ISA.

Another strand to the changes is that everyone is now to be provided with free guidance on what their options are. Supplied primarily by the Citizens Advice Bureau and the Pensions Advisory service, those who are reaching their selected retirement age will be able to get guidance on what their options are. It is important to understand that guidance differs from advice. Advice is usually based on your own situation and requirements taking into account all the options available whereas guidance is more generic and not necessarily tailored to your own situation.

The need for advice has never been so great; a wrong decision could be costly and irreversible. There is more choice but also an added complexity to the whole situation and could lead to more questions than answers.

BLM will continue to offer its ‘pensions options at retirement’ advice service and expects high demand from existing and new clients faced with more options than ever before.

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If you require advice rather than guidance, BLM can assist you by clicking here

Care Fees Cap

A summary of how the care fees cap will work and how you can find out how much you might pay overall.

In a news item on Wednesday 28th of January 2015, the BBC highlighted the issue of care costs and in particular the ‘cap’ on care costs that will come into force in April 2016.

The cap, which has been set at £72,000 [and is far higher than was proposed by Andrew Dilnot, the author of an independent report on funding for care costs], only applies to the cost of care. Most notably, it does not apply to so called ‘Hotel Costs’; the costs of providing accommodation and general living expenses.

The result of this is that, rather than paying a maximum of £72,000 for care, an individual could be faced with much higher overall costs to include ‘Hotel Costs.’

It is important to understand that the cap will not apply to everyone – only those who qualify will benefit from the cap. For example:

  • they have to be over the age of 65;
  • if a person is living at home, they must be struggling with daily tasks such as washing, dressing and eating.

Most people in care homes are likely to qualify, however, there are a great many people living at home who are just about managing to get along and they may find it hard to qualify. This means that they could have been effectively paying for assistance themselves but this won’t qualify towards the cap because they were not deemed to have been ‘struggling.’

Another contentious issue is that cap only commences in April 2016 and any costs spent prior to that will not be counted in the cap.

Because the cap only applies to the actual cost of care, those moving into a long-term care home will not have the full cost of the care accruing towards the cap. For example, the average cost of a care home in England is £574 per week. However, £230 of that cost will not count towards the cap because this is deemed as the ‘hotel cost’ i.e. the cost of accommodation and food.

There a further dimension to take into account too; an individual’s bill only accrues at the rate a council would pay for a place in the care home. Many care home providers say this does not cover the true cost of care so they charge people who are funding themselves more. Sometimes these fees can be twice as high.

The last two factors explain why by the time a person reaches the cap they may have paid far more than the £72,000 it is set at.

For example, say an individual is charged £1,000 for a care home place, but the council has negotiated a rate of £730 for the people it places (those people with low means who get help before they reach the cap), only £500 (£730 – £230 living costs) of the individual’s weekly bill will count towards their cap.  It means they will have paid out £144,000 by the time they reach the £72,000 figure.

It is reported that very few people will actually benefit from the cap. Government estimates put it at about one in eight people. This is perhaps because the average length of stay in a care home is just over two years. Yet in many parts of the country it will take longer than that to reach the cap. In short, most people will be dead before the state helps out.

As well as producing the news report, the BBC have also launched a calculator so that an individual can estimate how much they (or their relative) might end up paying before the cap comes into effect. The calculator can be found by clicking on the following link:
http://www.bbc.co.uk/news/health-30990913

As a SOLLA accredited adviser, Stephen Sale can give advice to people and families facing the reality of paying for care costs. Contact us to discuss your individual circumstances by telephoning 0113 282 5017 or email info@blm-group.co.uk

Source: BBC news