Equity Release / Annuity / alternatives?

LHW99

Silvertabby said:

Kynthia said:

Malthusian said:

Cazza said:

TVAS - I agree with your point re the pension being paid to the surviving spose, Mum's pension was Occupational so the rules of the scheme she joined were predetermined. As it happens it does sound as though there may be a very small Widower's pension payable, we are waiting to hear regarding this. 

It would be unusual for an occupational pension to provide a "very small" widower's pension (unless it was very small in the first place). 50% is standard. Private pension annuities are more likely to cease completely without widower's benefits.

The issue of an equity release loan snowballing with compound interest does not just affect inheritance; it would also reduce the funds available if Dad later decided he did want to downsize after all, or had to move into care.

If he's still physically and mentally active to the point he's working in finance, there is every possibility that he might later decide that the emotional value of the house doesn't actually outweigh the inconvenience / maintenance issues / unused space of staying in a large detached house. How he feels in the immediate aftermath of his wife's death may be very different to how he feels in a year or five years.

This is a classic case of when it is a bad idea to rush into anything. Recent major traumatic life event + perceived need based mainly on "he won't consider" instead of "he considers" + massively expensive financial product = recipe for a bad decision.

Have you considered loaning him the money yourself, secured against his house, to be eventually repaid from his estate?

I was very surprised to learn that it was less than 33 years ago the civil service pension scheme allowed for a widower's pension to start being built up. So i think any membership in the scheme before July 1987 doesn't pay anything to a widower. That makes it entirely possible for there to be people today left without much of a survivors pension especially if the wife didn't work to the scheme pension age of 60.

Applies to all of the public sector, and probably some private DB  schemes as well.

Pre 1988, there was no automatic widower's pension provision, as it was assumed that married women only worked for a few years/part time and that their breadwinner husbands had their own pensions.  Single women didn't need the added benefit of a widower's pension.

This changed in 1988, but was not made retrospective - only service going forwards was on widower's pension earning terms.  However, women could convert all of their service by paying the higher contributions needed - either in monthly payments while still working, or by a lump sum taken from their pension benefits on retirement.  If the LGPS is anything to go by, then very few women opted to do this, presumably because of the cost.

Changed again in the mid 1990s, making all service liable for widower's pension benefits, but only for those who were still active, contributing, members of the schemes.  Those who were already retired/deferred were stuck with the earlier rules.

And the post 1988 service only, regardless of date of leaving/deferment, still applies in the case of post retirement marriages.  That one in particular is still catching people out.

Silvertabby said:

Kynthia said:

Malthusian said:

Cazza said:

TVAS - I agree with your point re the pension being paid to the surviving spose, Mum's pension was Occupational so the rules of the scheme she joined were predetermined. As it happens it does sound as though there may be a very small Widower's pension payable, we are waiting to hear regarding this. 

It would be unusual for an occupational pension to provide a "very small" widower's pension (unless it was very small in the first place). 50% is standard. Private pension annuities are more likely to cease completely without widower's benefits.

The issue of an equity release loan snowballing with compound interest does not just affect inheritance; it would also reduce the funds available if Dad later decided he did want to downsize after all, or had to move into care.

If he's still physically and mentally active to the point he's working in finance, there is every possibility that he might later decide that the emotional value of the house doesn't actually outweigh the inconvenience / maintenance issues / unused space of staying in a large detached house. How he feels in the immediate aftermath of his wife's death may be very different to how he feels in a year or five years.

This is a classic case of when it is a bad idea to rush into anything. Recent major traumatic life event + perceived need based mainly on "he won't consider" instead of "he considers" + massively expensive financial product = recipe for a bad decision.

Have you considered loaning him the money yourself, secured against his house, to be eventually repaid from his estate?

I was very surprised to learn that it was less than 33 years ago the civil service pension scheme allowed for a widower's pension to start being built up. So i think any membership in the scheme before July 1987 doesn't pay anything to a widower. That makes it entirely possible for there to be people today left without much of a survivors pension especially if the wife didn't work to the scheme pension age of 60.

Applies to all of the public sector, and probably some private DB  schemes as well.

Pre 1988, there was no automatic widower's pension provision, as it was assumed that married women only worked for a few years/part time and that their breadwinner husbands had their own pensions.  Single women didn't need the added benefit of a widower's pension.

This changed in 1988, but was not made retrospective - only service going forwards was on widower's pension earning terms.  However, women could convert all of their service by paying the higher contributions needed - either in monthly payments while still working, or by a lump sum taken from their pension benefits on retirement.  If the LGPS is anything to go by, then very few women opted to do this, presumably because of the cost.

Changed again in the mid 1990s, making all service liable for widower's pension benefits, but only for those who were still active, contributing, members of the schemes.  Those who were already retired/deferred were stuck with the earlier rules.

And the post 1988 service only, regardless of date of leaving/deferment, still applies in the case of post retirement marriages.  That one in particular is still catching people out.

It was the same for the Teachers' pension scheme, I remember the paperwork coming out. AFAIK you had to pay a lump sum (large at the time, but good value now) to put all service to be counted for a widower's pension. Not sure how many took that up.

Cazza

Thank you all!

 Malthusian – Mum’s pension was very small in the first place in terms of £, albeit that even 50% would be useful to have. I appreciate your point that he may decide to downsize at a later date but I really can’t see things changing. Dad’s stubborn, he and Mum bought the house (new) 45 years ago and he has said for as long as I can remember that the only way he will leave will be in a box! Mum had significant health issues for the last 15 years of her life and it would have made everyone’s lives much easier if they’d downsized c12 years ago but he wouldn’t consider it then either. The house is now laid out in a way that would enable him to remain there unless he really did need round the clock nursing care. I’m not in a position to lend him the money myself. My husband and I both work and don’t have money concerns but we do have our own mortgage and two young children, we can’t assist in that way.

 Kynthia – Mum’s pensionable service started in the mid 60s hence I wouldn’t be surprised if there is very little provision for a widower’s pension. Mum retired from the bank at 55 but also had a career break of c10-15 years in the 70s & 80s and only then returned at part time hours.

 Ukdw – thank you for the podcast tip, I’ll look that up. I’ll look into the flexible lifetime mortgage options too. My concern with this is that whilst Dad is great at giving financial advice to other people, he’s awful at following it himself. Cash burns a hole in his pocket and I think there’s a strong possibility he’ll struggle to moderate the drawdown. Mum always held the domestic purse strings while she was able! They weren’t entitled to Pension Credits previously as a couple but I will double check if that’s still the case now.

 Barnstar2077 – I am working on the deepdive! J He’s been working throughout Mum’s illness and the loss of her income is c50% of the household income, so we will need to fill the gap to some extent (see my comment above about cash burning a hole in Dad’s pocket). Also, Dad sees the small amount of income he still earns as being the icing on the cake, he doesn’t take new clients anymore and passes on work he doesn’t want to do to trusted contacts. It’s not an income stream to rely upon, he doesn’t want the stress or commitment of having to “chase” work still. And I think that’s the right decision.

Cazza

Just checked via Entitled to, no entitlement to Pension Credits or other Benefits, just the 25% Council Tax deduction.

DairyQueen

I can't add much to what others have said but have read the thread with interest as this could be a problem my dad faces in the years ahead.

Like many women of her generation my mum has zero pensions of her own despite working for the best part of 35 years. Sadly, she suffered onset of MS in her early 50s. Now in her 80s, and very disabled, she has received DLA at the highest rate since before she reached SP age.

I discovered (far too late) that dad opted for a level annuity when he reached 65. Having given-up work in his mid 50s to care for mum he had already lost-out on several years of pension contributions so his pot was less than it would otherwise have been. Although low inflation has been on his side since then, the real value of his private pension has eroded to a point where the household income is now reliant on my mother's disability benefits. If she predeceases him we have a major problem as more than 50% of their joint income will cease and, like your dad OP, he refused to move when it was discussed a few years ago. Rising inflation will erode the value of his non-SP income even faster.

An interest-only retirement mortgage isn't an option as he couldn't afford the repayments. He will therefore need to downsize or consider equity release. We have considered buying a share of their house in order to release equity if necessary but that is tax-complicated for us, and it will tie-up a chunk of our own retirement pot (we are in our 60s and due to retire). 

They have some capital which would help subsidise dad's income should the need arise but low interest rates are eroding its value. Also, it's burning a hole in mum's pocket since she reached 80 so she is looking around for things to buy. She fails to consider dad's vulnerability if he is the survivor so is keen to spend it whilst they still can.

Both parents have full capacity so we must respect their financial decisions but both dismiss the possible train-crash heading down the track. Neither wants to face their own, or the other's, mortality and that denial is putting dad (in particular) at risk.

If mum is the survivor then their house will fund a decent care home for several years. Dad is my concern as he is fit-and-well and unlikely to need a care home anytime soon - if ever. 

A sudden drop in household income when widowed can't be unusual and yet there is little coverage in the media. 

Bimbly

The house two doors down was bought by a couple who were downsizing. The day they moved in, the wife sat in the car outside for hours. So much so that I went to check if she was ok. She never took to their new house and died within a couple of years. A couple of years after that, the husband died. Downsizing was the wrong thing for them. It may have been "sensible" to move, but it wasn't "right".

The couple who live their now are in their sixties and have also downsized. They love living there. It's quite a nice house.

People are different and what's right for one is not right for the other.

I see all the above comments about how downsizing is best and they are right in many ways. But it makes me remember the woman sitting in the car who was never happy after the move. If your dad is happier where he is, then so be it. If equity release can help him stay, then it makes sense to me.

Albermarle

Another issue about downsizing , is that when people start to actually look around for a new home , their expectations can start to increase. For example they might get a smaller property but with a sea view which ends up costing nearly as much as their old house. So practically it still works but the financial benefit can be less than first envisaged.

Nebulous2

Bimbly said:

The house two doors down was bought by a couple who were downsizing. The day they moved in, the wife sat in the car outside for hours. So much so that I went to check if she was ok. She never took to their new house and died within a couple of years. A couple of years after that, the husband died. Downsizing was the wrong thing for them. It may have been "sensible" to move, but it wasn't "right".

The couple who live their now are in their sixties and have also downsized. They love living there. It's quite a nice house.

People are different and what's right for one is not right for the other.

I see all the above comments about how downsizing is best and they are right in many ways. But it makes me remember the woman sitting in the car who was never happy after the move. If your dad is happier where he is, then so be it. If equity release can help him stay, then it makes sense to me.

That is about your mental outlook and taking responsibility for your own decisions, as much as anything else. I had a discussion with a manager of a sheltered housing complex who told me that the people who do well here are the ones who say they chose to be here. "I was lonely at home, so I decided to move here to get some company."  Those who don't do well are the ones who blame others: - "My daughter put me in here." "I'm only here because my doctor told me I couldn't stay at home." 

Having said that I think, there is a window of opportunity to move. Once people have deteriorated physically and cognitively it becomes much more difficult to manage and to cope with. 

We have down-valued, rather than downsized. Moved to an area we know well, with some family and friends around, where property is much cheaper. It's a trade-off, an older house, which will need work, and wont last forever, but it frees up a fair bit of cash, allows me to give up work and means we can tour Europe for months at a time with bikes and dogs- if that ever becomes permissible again. 

Which gives me my second point - it isn't just about moving home, it is also about whether that gives enough back to make it worth it if you feel you are losing something in leaving your home. 

LHW99

One suggestion: If they have some spare capital, it is possible for your dad to defer his state pension, even if he is receving it (I think you can do it twice in all). It would then increase by a certain amount every (I think) 9 weeks. Assuming he get the old state pension, the increase used to be the equivalent of 10.8% if it was deferred for a year, and the bigger pension would then get increased by inflation each year.

It would depend whether they could manage for a while by spending capital, as deferring pension would be a better rate of interest than keeping a lot as cash - though they would still need to have some emergency funds.

Cazza

Thank you DairyQueen - I've sent you a message.

Bimbly & Nebulous2 - pre-2008 I was a mortgage adviser and I have seen this, there's definitely a "right" window of opportunity for downsizing. I also know of clients who decided, with the benefit of hindsight, that they'd downsized a step too far; some even sold and upsized again. Changing area isn't a route to go down. My sibling lives 10 mins round the corner from Dad now. I'm further away but close enough to pop over daily for a cuppa / chat but property in my town is not cheaper, arguably more expensive. 

Albermarle - yes, very much the case in Dad's area. Flats aren't really around and nice bungalows are comparable prices, if not more expensive.

LHW - That's not something I'd considered before. I don't think it's an option as the only income Dad has in his name is the state pension but I know he does have some capital savings. I suspect not enough that I'd want to jeopardise leaving him with minimal / no cash savings but definitely something to consider when I tackle the deepdive into budget next week though. Thank you.

LHW99

You have checked that your dad didn't earn any pension back when he was working, that he lost track of?

https://www.gov.uk/government/news/new-pension-tracing-service-website-launched