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Adviser insight: Unlock pensions for clients who face an early death

A case study of a client who had terminal cancer highlights the dearth of information about the options for people who are terminally ill to free up cash in pensions early to use while they still can, writes George Emsden of in2 Consulting.

Guy is in his 40s, has no children and works in the City for a large bank. He is starting divorce proceedings and money has been agreed. With a large house, the choice is: sell the house and give his spouse half or raise a mortgage for her share and stay put. Key facts illustrations are produced, which he takes away, and couple of days later he phones to say he wants the mortgage option.

Although the application is done, the fact find shows two paid-up executive pension plans from his earlier self-employment, and no income protection or critical illness cover.

The quote for a £300,000 critical illness policy to cover the mortgage is more than £300 a month, but he later calls to say he can get critical illness cover for about £90 a month via his employer’s group benefits scheme.

I have not seen any illustration but, at that price, I suggest he might as well buy the maximum.

Bad news is broken

The mortgage takes months to complete but there is no contact from the client. My letters and phone calls go unanswered.

I check with the human resources department at his workplace and they tell me Guy is not at work so I phone his home number once more. He answers and after the usual pleasantries, blurts out: ‘I have terminal brain cancer.’ I suggest we meet either at his home or my office.

He comes to my office and brings me up to date. He says it started with headaches and feeling unwell and then one day at work he just lost it and was told to take time off.

His GP prescribed headache pills but his sibling was on the ball and protested until he was referred to a hospital where a scan revealed a brain tumour the size of an egg. The tumour was removed and, although he has a large scar on the side of his head, so far, so good.

He had taken my advice in buying the maximum critical illness cover – £250,000 – thus clearing most of his mortgage.

Crunch time

Guy is sitting in my office and looks well enough, having made his own way happily and is quite lucid. He looks slightly older and a bit tired. The surgeons were unable to remove the entire tumour, he says, because of its location and it may grow back. So it is crunch time.

‘I have to ask you a question…but you don’t have to answer,’ I say. ‘How long have you got?’

Without pause and quite calmly, he tells me 50% of people with his condition are dead in 12-18 months because the tumour grows back.

He has just completed his divorce and he has a six-figure sum tied up in his old pension policies. The idea of tax-free cash and an annuity is ridiculous but this is my first case of dealing with a terminally ill client. I have had a couple of critical illness claims but never this.

Accessing pension pots

Guy is not going to buy any policies and the best approach for him is to have the funds in cash. So I will have to charge him for my time: two hours ought to cover it. I then pass the file to the administrator. Many weeks go by and she has made no progress so I take the files back.

After 25-minute phone call to the pension provider and four transfers from one department to another, I finally speak to the person who can send me the forms I need, which take four days to arrive. These are then sent to the GP and my client’s pensions are finally paid out in cash.

I seriously undercharge for my time but I do not have the heart to send the client another invoice. I get an e-mail three months later to tell me he died in a hospice.

Serious sparcity of information

Writing up this case makes me wonder how many people out there in the same state of health do buy an annuity.

Information on the web is sparse. A pensions article on the Cancer Research website (www.cancerhelp.org.uk/help), for example, contains a lot of quite technical information, advises talking to an IFA (for which it provides links) and mentions enhanced rates for people with cancer. But I could find no information on the site about being able to get all the funds in cash.

Around 90,000 people a year are diagnosed with cancer, so ignorance of the options is depressing.

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