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Rest assured

I have recently been diagnosed with multiple sclerosis and am concerned about what pension benefits I am going to be able to leave to my wife. Can you advise me?

Simon is in his early 60s and still working part-time. However, his earnings are small and likely to drop off fairly soon. As such, he relies on his pension income as does his wife Grace. When he was 60, Simon decided he was going to take the benefits from his pensions.

He had previously been a partner in a firm of architects and had taken early retirement a few years before. Simon supported himself through some part-time work contracted back to his old practice but decided he would like to increase his overall income by drawing his pensions.

Simon was now in a fortunate position, in that most of his pensions were in the form of guaranteed annuities. As such, he benefited from annuity rates of 10 per cent against prevailing market conditions, at that stage of around 6 per cent. However, the downside of these annuities was that they were on a single-life basis and provided no spouse’s benefit at all.

If he had wanted to add a spouse’s pension at that stage, then Simon would have fallen back upon prevailing annuity rates rather than the favourable guarantees. So, as a balance, Simon consolidated all pensions that did not have guaranteed annuities into a Sipp, held on our wrap platform with Standard Life.

Simon likes the system, as he can see exactly how much his investment is worth, both currently and historically.

Fortunately, we took a reasonably cautious view with the pension investments, and, as a result, Simon’s portfolio has not suffered as much of a downturn as it might have done.

It was hard to get an accurate prognosis of Simon’s condition as multiple sclerosis can be so variable. The doctors are not quite certain as to what Simon can expect. His rate of deterioration is not high at the moment but he is clearly concerned about his wife Grace and what might happen to her. We met to discuss this and for me to advise him on a very different set of circumstances to those we had anticipated.

When I had taken in the news of Simon’s health and what this meant on a personal basis, my reaction to Simon’s news was that I hoped he was going to live a long time. Obviously, Simon had no great wish to line the insurance company’s pockets too soon.

He was in good spirits and sought factual information. We looked at the Sipp that had been set up and discussed how this could provide his wife Grace with an income. To date, no benefits such as tax-free cash sums from the Sipp had been taken, so full options were available.

In addition to the pensions, Simon and his wife have two properties – their main home and a holiday home they use quite frequently. Grace would prefer to relocate to a country property rather than stay in London as this would allow her to be nearer to their two children so there would be a possibility of releasing equity from their London home.

However, Simon is eager to remain in London. His part-time work is here and he likes the house. He is also keen that, should he die, Grace would not be obliged to sell the house in the short term when she might need some time simply to take stock.

Here, the Sipp would enable Grace to draw on the tax-free cash sum for more immediate and higher-income needs while she maintains both the properties, dropping back to relying on the natural income stream once she sold the London property.

Furthermore, the London property itself could provide an income stream for her. We discussed how much revenue this would be likely to produce and this, together with the Sipp income, mean things will be very comfortable for Grace.

One matter for additional review was to check that Simon and Grace’s wills are up to date and reflect their wishes.

Armed with this information, Simon is reassured that Grace will be well provided for should his health deteriorate.

We parted with promises that he will look after himself well to ensure that the insurance companies do not get their hands on the residual guaranteed annuity fund monies too soon.

Amanda Davidson is a director of Baigrie Davies

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