Lif Assured Bond for an 84 year old?

Rubymoon16

My mother is 84, currently in good health and living alone in her house. She has recently received some advice from a St James Place FA which I have some concerns about. I would really appreciate any insights you could give on the proposals being made. Her previous adviser was also under the SJP umbrella but he has more or less retired so she is now seeing a new person. This is the first ‘results’ meeting after his initial review she had with him in the summer.
Her current investments consist of approximately 300K made up of a Unit Trust feeder which has 3 years left, at the full ISA allowance, to feed an ISA containing the balance. At present, she gets state pension only and she tops this up by drawing approx 10K per year from her investment pot. Up to now drawing this amount has still allowed the overall balance to increase from year to year. She has been happy with this arrangement. She has given her risk profile as a 4-5.
The new advice is to place some of the total pot into a “Life Assured Bond”. The reasons stated include that this would prevent the local authority from being able to access the Bond in the case of care needs in the future. Also the Bond would protect its funds from Inheritance Tax. The fund would have her 3 daughters named as beneficiaries, and so would pass to them on her death. The advice states that she can access 5% on an annual basis. My mother suggested she put 2/3rds of her pot into the Bond.
My concerns are the following;
I feel that there may be an issue in the future regarding ‘Deprivation of Assets’, as this advice has been offered including the ‘sheltering from local authority’ point and that at 84 there is a fairly predictable forecast that on a gradually increasing basis care may be needed in the next few years.
Even if the advice is sound, as she owns her property surely the LA could just put a charge on this instead or force a sale. In which case my mum could be in a worse situation than if the funds had been left accessible.
There is a hefty charge for setting this up. He is suggesting, that at his discretion, he reduce the initial charge to 3.75% ( still approx £7000) but that seems like a lot to come out of her capital even though it is spread over 5 years. A 5% limit on withdrawals from the Bond may not be enough if her needs increase in future as, over the next 10 years, she will be depleting the remaining funds between £10,000 and £12,000 pa. Although she thought she was in the medium risk level 4/5 he also said the funds in general appeared to be ‘Low Risk’ (90% low and 10% high) and she could consider increasing her risk level to increase future growth.
Q; Is another stock market based investment a suitable risk level for an 84 year old considering cost and life expectancy? He has said the Bond would be in the same funds as her current portfolio. Should she be encouraged to keep or reduce her risk level to protect the capital from erosion?
Q; A friend has suggested we get a second opinion on this advice from an IFA, preferably with a ‘later life’ qualification. Would this be a good idea?
I feel that neither my mum, nor I fully understand the investment being offered, and that it may not be in her best interest to take it. We are only able to understand small amounts of financial info at a time and it seems easy to be bamboozled by flow charts and impressive sales chat. I want to be able to explain things clearly to her so she can make a fully informed decision. Thank you.

AnotherJoe

My mother is 84, currently in good health and living alone in her house. She has recently received some advice from a St James Place FA which I have some concerns about.

Nothing personal but everything after that is superfluous and not needed and I didn't bother reading .
SJP are renowned for having high cost poorly performing investments underneath a high class looking glossy shell.
Recent expose in the Sunday Times although hardly a secret to anyone here.
Get your mother to see an IFA where the I stands for Independent.
Even if the advice from SJP was correct as to right approach you'd be able to get the same service for 1/4 to 1/2 the cost and without the lock-in, elsewhere. Your mum might not get glossy brochures or inch deep carpet in the advisers office but guess whose paying for that.
Steer. Well, Clear.

Keep_pedalling

Agree with Joe, and as your mother is in the fortunate position of being able to control the who where and when of care options, the only reason I can see for taking her liquid assets out of the equation is to provide the SJP salesman with a hefty commission.

LHW99

The reasons stated include that this would prevent the local authority from being able to access the Bond in the case of care needs in the future.

The LA can reclaim money if they think there is a deliberate intention to avoid care fees - google "deprivation of assets" - I guess the SJP suggestion could fall foul of that, as you say.

A friend has suggested we get a second opinion on this advice from an IFA, preferably with a ‘later life’ qualification. Would this be a good idea?

Yes, IMO - Google SOLLA.



Generally SJP are a very expensive option, and the "advisers" are basically salespeople.

Owain_Moneysaver

Rubymoon16 wrote: »

My mother is 84, currently in good health and living alone in her house.
The new advice is to place some of the total pot into a “Life Assured Bond”. The reasons stated include that this would prevent the local authority from being able to access the Bond in the case of care needs in the future. Also the Bond would protect its funds from Inheritance Tax.

Is your mother going to be liable for IHT anyway? If she inherited her husband's nil rate band, and leaves the house to a direct descentant to claim the resident's nil-rate band, she can probably currently leave up to £950,000 (from next April £1m) in total without IHT.

In terms of paying for care, it is not the case that the local authority can "access" funds or not. If your mother is assessed as still having the capital (see Deprivation of Assets) then the council will simply not fund care, and it will be up to your mother to make arrangements to fund care or go without. She would be much better to have her funds available to her to spend as she needs.

Finally, all these investments carry risk and she may lose some or all of her capital if the underlying fund performs poorly. And high fees can wipe out modest fund performance.

HappyHarry

An investment bond does nothing to help with inheritance tax. The adviser is talking rubbish. It will remain part of your mother's estate.

With regards to care home costs, then in theory the bond can be dismissed from means testing, but the investment now would likely be considered deprivation of assets. However if your mother's estate is likely to pay inheritance tax, then there would be a lot of estate to burn through in care home fees before this even became a solution to a problem.

ISAs and general investment accounts are likely to be a far more appropriate product for someone in your mother's situation.

You might want to suggest to your mother that she speaks to a proper IFA.

Aegis

I'd be genuinely interested in seeing the suitability report for this one, as it sounds utterly terrible. Might you be amenable to emailing it to me? I can make a few comments (professionally) in exchange, if you'd find that helpful?

Malthusian

The new advice is to place some of the total pot into a “Life Assured Bond”. The reasons stated include that this would prevent the local authority from being able to access the Bond in the case of care needs in the future.

If it's an offshore bond, the actual reason is that she wouldn't be able to move it away from St James's Place without paying a whopping tax bill.

(This is contrast to ISAs, pensions or unwrapped funds, where you can transfer between providers without tax consequences. You can't transfer onshore and offshore bonds between providers without selling them, which is why all SJP advisers want to marry offshore bonds and have their babies.)

She, or somebody else, would eventually pay a whopping tax bill anyway, unless she and her heirs knew exactly what they were doing and had very specific circumstances. But the fact that it exists is often enough of a deterrent.

You haven't said whether the bond is onshore or offshore but it's SJP so there's a reasonable chance it's offshore.

It is possible in theory to save tax using insurance bonds, but the majority of the people who would save tax do not exist. They are imaginary people invented for sales presentations of the "This is Bob. Bob is a higher rate taxpayer and has a wife and three non-tax-paying wastrel adult kids who blah blah blah blah blah." variety.

As others have said the advice sounds terrible, and even if it is good (which is in theory possible as we are getting a third-hand report of the adviser's justifications, and they aren't here to defend themselves), she should not take it; she should go to an IFA who will give equally good or better advice and be half the cost.

The bit about avoiding Inheritance Tax makes it sound like giving her money away to a Trust would be involved, which would then invest in the bond. In addition to deprivation of assets, the gift with reservation rules also need to be considered.

Aegis

Malthusian wrote: »

It is possible in theory to save tax using insurance bonds, but the majority of the people who would save tax do not exist. They are imaginary people invented for sales presentations of the "This is Bob. Bob is a higher rate taxpayer and has a wife and three non-tax-paying wastrel adult kids who blah blah blah blah blah." variety.

I must disagree with this part of an otherwise-excellent post, though my disagreement is largely going to be with anyone who proposes such a bond when other allowances are left over rather than with you, which I hope puts us onto the same side! My own position as an adviser is that these are useful when you have someone whose income is into the higher rate of tax now but where they either have flexibility on retirement date or flexibility of income for later in life. They also have to have fully earmarked their dividend and savings allowances for the foreseeable future, and they must not be easily able to shift wealth into a lower-rate taxpayer (e.g. spouse).



What you're then left with is a niche product for individuals looking to invest probably well over £1 million as a lump sum, and those people definitely exist. If they're going to be using a SIPP or other personal pension to fund some of their retirement income, thjere's every chance you can tweak their income later in life to let them pay an aggregated 20% tax rather than a blend of 20%, 32.5% and 40% as a higher-rate taxpayer.


Otherwise they generally shouldn't be used for normal investors, in my view.

SonOf

Investment bonds can still be viable as an option but after the changes in the dividend allowance and the increase in the ISA allowance along with pensions becoming a tax wrapper rather than a product, it means the investment bond is now a very niche option. I personally haven't done one in about 7-8 years. Nowadays, I tend to do more getting money out of them tax-efficiently without triggering a chargeable gain.

They have gone from being very mainstream until around 2013 and easy to justify to being very niche. Often when I have read reasons for justification on ones I have seen done by others, the trust has just been an excuse to get it into a bond rather than a genuine advice reason. For tied sales reps, putting it into a bond can prevent an IFA from taking over the business in future. We cannot possibly say that is the case here but it is something that would be in the back of my mind.

Rubymoon16

Thank you for offering to see a suitability report but that would be up to my Mother. By all accounts the advice is to see an IFA and that a Bond may not be the answer which was my initial gut feeling. It is a work in progress and we won't do anything hasty now. Thank you again.