The Times - UK (2022-04-09)

58 Saturday April 9 2022 | the times

Money

5

IN THE

SUNDAY TIMES

TOMORROW

plus

Forget tech. Rise of

the new Faangs

The £36k loan

that cost

Mum £100k

All of a sudden retirement is looking risky

I always remember the case of

Julia. She was 67 when her

husband, Robert, died, leaving her

with a state pension of just a few

pounds a week.

Robert had taken out a pension

annuity that paid out only while he

was alive.

When he died three years after

arranging it, his 30 years of saving

went with him. Yet Julia

remembered clearly the

conversation with the insurance

company salesman who came to

their house, when Robert had

explained his history of heart

problems, years of smoking and

how he wanted to make sure that

his wife was looked after.

The annuity he was sold reflected

none of this — making the insurer

tens of thousands of pounds richer.

The pension freedoms legislation

that was introduced in 2015 was

a response to cases such as

this — stopping insurers

from ripping off

vulnerable savers —

but it is also cases

such as this that

highlight the new

world of peril the

freedoms created,

one that is to be

brutally tested now.

Annuities, which

turn a pot of pension

savings into an income,

were never a bad

product. They give you

guarantees: of an income for life, of

matching inflation or of providing

an income for your loved ones after

you die. It was the way they were

sold that was the problem — as

greedy salesmen sold bog-standard

deals to people who deserved more

money.

Post pension freedoms, you can

easily do what you want with your

savings and most people choose not

to take an annuity, often because

they have heard such

terrible tales about

them, but also

because most people

don’t like the idea

of locking up their

money with an

insurer for years.

Annuities also

seem rotten value

for money. A

£100,000 pot will get

you an income of

about £5,300 a year or

an initial payment of about

£2,900 if you want it to rise with

inflation.

Fears that people would blow

their entire pensions have largely

proved unfounded — if anything

savers have been too cautious.

But what we’ve had since the

pension freedoms came in is rising

stock markets and low inflation,

which have made it very easy for

anyone to manage their money —

drawing down sensible amounts

every year. On top of that many

people have had defined benefit

(DB) pensions to fall back on,

which give that extra bit of security.

All this is changing though.

Markets are plateauing, inflation is

soaring, and every year the number

of people who can fall back on DB

pensions falls. Combine this with

the plunge in annuities and we’re

seeing the slow death of financial

security. All of this equals risk.

Inflation can kill your retirement

dreams as your barely growing pot

of money needs to stretch further

and further.

How many of those people who

have chosen to manage their own

pensions in retirement are ready

for the pain ahead?

@jimconey

James

Coney

Money

editor

Comment

£12k

average income for

a single pensioner —

less than half the

national average

belief that they are “common-law

spouses” — that they have some

form of greater protection because

they live together or share finances.

In reality there is no such thing as a

“common-law marriage”.

And then there’s the problem that

so much family wealth is used to help

young people on to the ladder. The

property website Zoopla said that two

thirds of parents have helped their

child to buy a home, with the average

contribution hitting £32,440.

The thing is that it is rarely made

explicit what happens to this money.

For some it is a gift with no strings

attached, an early inheritance if

you will, but for others it is a loan to

their child. Few imagine what will

happen if a couple separate or one of

them dies. This makes it even more

important for buyers to write wills or

take out life insurance to cover not

only their mortgage debt but also any

gifted deposit, if it would help to

smooth things over for those involved

at an already difficult time.

Far from being unromantic,

thinking about death is a loving

gesture. It is about making sure that

your partner is cared for and that you

do not detonate a financial bomb and

leave them to pick up the pieces.

And in our financial situation, Will

is right (please don’t let him read this)

to have concern over what would

happen if I died in between buying

the property and us getting hitched.

We each have savings and are

fortunate to also have help from our

families. We are using Will’s money as

the house deposit while my savings,

locked away in fixed-rate bonds, will

be set aside for our future.

We are buying the property as

“joint tenants”, so we own the

property together and if one of us

dies, the other would become the sole

owner. That part is simple.

But as we do not have wills, until

we get married the rules of intestacy

would apply to all our other assets.

Neither of us would inherit a penny

from the other if they died, which

means my long-term savings that are

intended for both of us would not go

to Will because they are in my name.

We have ended up in a two-tier

financial relationship: if I died, Will

would get the house, but not our

long-term savings. If Will died, I

would get both.

So we need to get our affairs in

order, and we’re going to write wills

— even though they will only be

necessary for three months, because

all they will do is set the same

inheritance rules as you would get in

marriage anyway (apart from the

£325,000 spousal allowance for

inheritance tax).

Talking about it was easy, and five

minutes after Will had asked me

about my unlikely, but potential, early

death, we had agreed to write the

wills and I was back playing Wordle.

We will be leaving everything to

each other, which is exactly what

would happen once we were married

anyway. In effect we can rip up the

wills after we have our Big Day. Then

when other big life events happen we

can write another will, so that as life

changes so do our plans for what

happens after we are gone.

The process made us spend time

thinking about each other and isn’t

that the most romantic gesture of all?

Pointless paperwork

When our offer on our tiny new

house was accepted in February,

everyone from my boss to my mum

warned me not to get too excited; the

process was likely to take a long time.

I was naive enough to think that ours

would be different and we would

surely exchange within weeks. After

all, we are first-time buyers, the flat is

chain-free, and everyone is hoping for

a speedy sale.

Enter the thorn of wet signatures,

a requirement from almost every

company we have dealt with that has

turned each bit of paperwork into a

three-day task. The solicitor, surveyor

and mortgage lender all sent over

contracts and terms and conditions to

sign and send back, but e-signatures

have never been an option.

I’m sure there are still families who

own printers and scanners, but

because we don’t, finding a printer to

use, taking the paperwork home to

sign it, then finding a scanner has

added weeks to the process.

I’ve used e-signatures, a wonderful

invention that lets you sign a contract

digitally by either typing your name

or swirling your signature on a touch

screen, to sign contracts worth much

more than the £700 we’re paying the

surveyor. Our two-year-long rental

agreement, signing us up to pay

nearly £40,000 over the 24 months,

took seconds to sign using software

called Adobe DocuSign.

At a time when we can open our

phones with our thumbprints,

transfer thousands of pounds in

seconds and walk through

immigration control using a camera

and scanner, surely e-signatures

should be the norm. The property

market would surely benefit if

everything moved a bit faster.

I’m getting a

will. In three

months’ time

I’ll tear it up

I

t was my fiancé who first

unexpectedly raised the topic of

death.

“What would happen if you

died before we get married in

July?” he said, interrupting

my Wordle. My first reaction was that

this was a segue into a joke. But no.

“Money-wise. If you died before we

got married, what would happen to

our money?”

There we are, supposed to be

nailing down the menu and the songs

we want the band to play, and Will is

preoccupied by my untimely death.

We’re both fit, healthy and in our

twenties. Chances are we’ll both be

around for a while yet.

So my gut instinct was to duck out

of the conversation. Death and

finances are supposed to be my remit

in our relationship. Only a few

months ago, I wrote about the

financial heartbreak that followed the

death of 39-year-old Nic Infante. His

wife and his father ended up in a sad

dispute over a loan for the couple’s

house that needed repaying.

Most people who read it felt

sympathy for both sides, but one

comment kept coming up: if only they

had spoken about it before he died.

After interviewing those involved the

story stuck with me.

Will and I hope to exchange on our

first home at the end of this month,

and then three months later, we’re

getting married.

This means finances, wills and the

d-words — death and divorce — have

slowly crept into some of our

conversations. I absolutely hate it.

So what happens if one of us dies

between these two milestones?

Will is a pragmatist; I’m an ostrich.

I want to stick my head in the sand

until the conversation goes away. The

whole conversation is too businesslike

when I feel that marriage should be

romantic.

I know I’m not alone. As a nation,

we are not good at talking about

finances or death, yet situations like

mine and Will’s are increasingly

common among those my age

because of the housing market.

Many young people are prioritising

getting on the property ladder before

they get married as they are unable to

afford both, so while many couples

operate as one financial unit they will

have no right to the other’s savings or

investments if one of them were to

die without a will. Family lawyers

say that many cohabiting but

Imogen Tew with her fiancé, Will unmarried partners have an incorrect

Modern

Money

Imogen

Tew