Topic 6 Flashcards
If an annuity is to be purchased with the proceeds of an equity release plan, why should consideration be given to the clients state of health?
Those in poor health and seeking income would be well advised to consider an enhanced or impaired life annuity, available to those with health problems that could affect life expectancy. Such annuities can offer significant increases over standard annuities, even for controlled illnesses. Enhanced rates are also available to smokers.
What is the maximum compensation the FOS can reward for complaints about acts or omissions by firms?
The maximum compensation the FOS can reward for complaints about acts or omissions by firms on or after 1st April 2019 is £350,000 plus interest and the complaints’s reasonable costs.
On 7th August 2018, Lena reached state pension age. She’s single. Is she entitled to savings credit?
No, The savings Credit element of Pension Credit has closed for people reaching state pension age on or after 6th April 2016, although some couples may still be able to claim it if one of them reached state pension age before that date.
what are the key principles of ethical advice?
The key principles of ethical advice are as follows:
- Find out all relevant facts about the client.
- Construct solutions that meet the client’s needs and match their attitude to risk.
- Explain the recommendations in language the client can understand.
- Proceed with the application only when it is clear that the client fully understands what is being proposed.
- Ensure no pressure is placed on the client during the process.
List the factors that need to be considered when establishing clear gals and objectives for a client.
The factors that need to be considered when establishing clear goals and objectives for client are as follows:
- The need for income, capital or both.
- The minimum amount required and the minimum amount that would be acceptable to the client.
- The reason for the need, for example essential or aspirational spending.
- Other resources that could be used.
- The client’s attitude to losing ownership of some or all of their property or accumulating a debt against it.
- The client’s attitude towards leaving an inheritance for their children.
How are the interests of equity release customers protected?
Both lifetime mortgages and home reversion plans are regulated by the FCA, and customers have recourse to the Financial Services Ombudsman and the Financial Services Compensation Scheme.
Where the provider is a member of the equity Release Council, they are bound by its Statement of Principles, which includes a “no negative equity” guarantee and a requirement for the customer’s solicitor to sign a certificate confirming that the implications of the plan have been explained to the customer.
Abdul is single, aged 78 and has a weekly income of £138. He has £13,200 in a building society account. He is considering a home reversion plan that will give him an additional income of £50 a week from the annuity purchased with the capital released.
A. what state benefits is Abdul likely to be currently eligible for?
B. What impact would the additional income from the annuity have on his state benefits?
A. Given his age and current levels of income and savings, Abdul would be eligible to receive Guarantee Credit and Savings Credit. His income would be deemed to be £145. This represents the £138 income plus £7 notional income from his building society account (£13,200 - ££10,000 / £500 = £7). This is below the appropriate amount of £167.25 for the Guarantee Credit, and between this figure and the Savings Credit threshold of £144.38. His income is also likely to be below the applicable amount of Council Tax Reduction, which he might be able to claim.
B. If he took out the equity release plan, Abdul would increase his notional income to £195. This means he would lose his Guarantee Credit and most of his Savings Credit and his Council Tax Reduction, So, while he would receive an additional £50 a week from the annuity, this is offset by his loss of benefits. A calculation would need to be undertaken to confirm whether he would be better off financially, but even if he is, as Abdul is also giving up a share of his home, he may not feel that the home reversion plan is suitable choice for him.
Having reviewed your client’s income, savings and investments, you feel it’s likely that they are eligible for further state benefits, which might be a more suitable way of raising additional income for them than equity release. You are not entirely confident that you know what these benefits are exactly and how much they’re likely to receive. What should you do next?
You should recommend that the client seeks advice from an appropriate organisation, such as Citizen Advice, the Department for Work and Pensions or their local authority. if they reject your suggestion, you can still advise them to enter into an equity release transaction where there is one appropriate to their needs and circumstances, but you must confirm to them, in a durable medium, the basis on which the advice has been given.
How does a deferred payment agreement work?
Under a deferred payment agreement, a homeowner who needs to enter a care home does not have to sell their home immediately to pay for the care home’s fee. Instead, the local authority will pay the care bills on the homeowner’s behalf. The money is then repaid when the home is sold either on death or earlier, if that is the homeowner’s choice.
