Taking a family approach to planning and financing retirement

Building a pension and making a will should be done before it's too late,says Laura Slattery

Nobody likes thinking about getting old but for most people retirement is something they can look forward to as long as certain preparations are put in place. Building up pension funds, making a will and appointing a power of attorney are just some of the provisions that need to be in place before it's too late, according to solicitor Mr John Costello, author of best-selling book Law and Finance in Retirement.

This week saw the publication of the second edition of the guide to the legal and financial issues faced by older people and their families, first published in 2000, to include legislation brought in under the Pensions Act 2002 and the Finance Act 2002.

Equity-release schemes targeting over-65s, new community support schemes, housing grants and recent case law for separation and divorce are just some of the new topics added to the agenda for older people.

But the book isn't just something people should collect along with their bus pass when they reach a certain age. "It's not just for retired people," says its author. "It's also for people with older parents so they can encourage their parents to make a will and possibly an enduring power of attorney," Mr Costello explains.

Details of tax-efficient ways of paying for nursing care are also useful to younger people with older parents.

Most people should be able to enjoy their senior years as a time when they can adopt a pace of life that's comfortable for them, whether that means days spent visiting grandchildren, relaxing at home with a cup of tea, joining social groups, planning round-the-world trips or all of the above. The majority of over-65s are healthy enough to pursue an active retirement, income permitting.

But when older people do need moderate to full-time care due to illness, it can pose serious financial problems for their families. "If a family member has to go into a nursing home, people often don't know what to look for," says Mr Costello.

"The second thing is, they don't know how to fund it."

Selling the house is fine if the person lived on their own, but if there are other family members to consider, financing the €500 to €1,100 a week needed for residential care is not a simple task.

Law and Finance in Retirement gives details on the different types of care options available, regulation and codes of practice for nursing homes and ways of financing long-term care.

In the 30 years between 1996 and 2026, the number of older people forecast to need at least a moderate level of care is expected to jump by more than 70 per cent, due to Ireland's ageing population.

Since the first edition of Mr Costello's guide was published, two equity-release plans tailored for older people have been launched. Under Bank of Ireland's Life Loan over-65s can borrow up to a certain percentage of the value of their home without having to make any repayments until the property is sold, the owner vacates the property or the owner dies.

A company called Residential Reversions also runs a scheme where they buy a part interest in the house, providing the owner with a lump sum, a cash annuity or both.

"The advice I give is that they must discuss it with their children," says Mr Costello. It is possible, he says, for the children and the homeowner to make private financial arrangements, where the house might be sold to a child but the parent has legal right of residence for the rest of his or her life. "All the family must be happy with any arrangement," Mr Costello adds.

What people with older parents in need of care often forget is that they can help parents out in a tax-efficient manner, he says. A child or another relation can provide a deed of covenant for an older person to assist with nursing home fees and then claim tax relief on payments made under the deed of covenant.

Appointing an enduring power of attorney is an important step that needs to be taken to make everything run smoothly for the rest of the family if conditions such as Alzheimer's disease and senile dementia take hold.

"Certainly if there's a power of attorney there it makes life easier for the families," says Mr Costello. This gives a member of the family or another appointed person the power to act on behalf of a person who becomes mentally incapable of managing his or her financial affairs and personal care decisions.

But an enduring power of attorney can only be appointed while the person is still mentally capable, so if this is not done in time, the older person suffering from senile dementia may have to be made a ward of court if they are incapable of looking after their own affairs. This can be distressing for loved ones.

Appointing a power of attorney can be done at the same time as making a will, which is another vital legal step that needs to be taken, especially if children are still young or if there is a family business involved.

People who enjoy a long and healthy life, however, will benefit if they apply the same degree of forward thinking to their own retirement income as they do to the financial well-being of those they will eventually leave behind.

With the introduction of personal retirement savings accounts (PRSAs) to the market early next year and the October 31st tax deadline fast approaching, pensions are a hot topic at the moment, and it was changes in pensions legislation that prompted the second edition of Law and Finance in Retirement.

At the launch of the book, Mr Costello warned that private pension saving may have to be made mandatory in the future, although he was not sure if such a move could be implemented.

One significant change, notes Mr Costello, is that the maximum limit on the amount of income a person can make in additional voluntary contributions (AVCs) has been doubled for the over 50s, from 15 per cent to 30 per cent. People in their 30s can now contribute 20 per cent of their net earnings in AVCs and people in their 40s can contribute 25 per cent in AVCs, boosting their pension considerably.

AVCs are "extremely important", he says. "It makes tax sense to do it. It's going to be a feature, I think, you're going to have to pay lump sums into your pension every now and again."