Kathryn:       Hi everyone, this is episode seven of season four and today we have Roy McLaughlin back with us and also Andy Bullen from Zurich – hi!

Andy:          Good morning.

Roy:            Morning!

Kathryn:       Good morning.

Andy:          And may I start off by saying many congratulations to you.  I’m honoured to be in the presence of two award winners after last night’s Money Marketing Awards.

Kathryn:       Thank you very much.  It’s nice.

Roy:            Thank you very much.

Kathryn:       I’m hoping that my team are going to be sending me pictures of the beautiful big red ‘M’ award, on its way back on the train.

Roy:            It’s quite a stunning M I’m going to have to say.  I’m looking at my M right now!

Kathryn:       Absolutely fantastic!  Lots and lots of smiles all around and obviously some really, really good work that’s been obviously discussed and shown at the Money Marketing Awards, so amazing work done by all the nominees.  Good night for all.  Today we are going to be talking about intergenerational wealth planning, something that I know you are really keen on, both of you and me.  And I think what’s really interesting about this is that obviously you guys are absolutely massively obviously on the wealth side of things.  I’m very, very much so on the protection side of things and it’s going to be really nice to have a chat, to really talk about how these mix and work so well together.  This is the Practical Protection Podcast.

So Andy, I did some training with you recently and I found it really interesting, because I always say that obviously, I’m protection through and through, but I also – I speak to lots of IFAs and I help them in terms of the protection planning for their clients.  And I’ve always sat there and I’m always sort of like thinking, “I wish I knew a lot more about their side of things,” so that I could maybe – in a sense not challenge, but basically say, “So hang on, do we definitely have this here and do we have this plan here in place?”  Because sometimes I’ll chat to people and they’ll say to me, “Oh no, we don’t need that, you know, we don’t need that in place because I’ve done some magical solution over here, which answers everything.”  And I’m kind of sat there thinking, “I’d love to know what that magical solution is,” just so I understand it more, so I know that the client is absolutely okay in my mind.

And I found it really interesting when you did your training and I was just wondering if you could sort of like give us sort of a bit of a brief background as to how wealth and protection obviously work so well together but also probably even more so, how they shouldn’t be seen as things done over here and things done over there.  They’re actually completely – should be merged together.

Andy:          Okay, well I suppose if I think back over sort of 30 years of being a – working in the wealth area, I suppose typically wealth advisors are focussed on investment growth, retirement planning, estate planning for their clients.  So generally you can argue, we are less likely to be as familiar with protection – the protection sell per se, as perhaps mortgage advisors or protection specialists.  But if we think about the background that protection needs to be sold, it really should be a core part of the holistic financial planning process.  Now, it reminds me of a comment made by an advisor many years ago, that he basically said, “Well of course wealth advisors do positive planning for the clients’ future, whereas protection advisors do negative planning for when things go wrong and there’s worse case scenario.”  And it’s always struck me that, that these two things aren’t mutually exclusive.  They actually should sit really nicely side by side.  And if there’s this one thing the pandemic has shown us, it’s to expect the unexpected.

And of course, as we’ve read in the press, these preconceptions of living a long and healthy life at whatever age you are have been somewhat shattered and people now are facing up to their mortality and hopefully are more open-minded to protection.  So going back to the original question, if we think about it, wealth advisors are engaged with clients, I don’t know, throughout every life stage they go through.  So it could well be their first job, owning a home, starting a family, saving towards specific investment goals.  Then your retirement and your estate planning and all of those things can be underpinned in some way with protection.  So for me, protection should be viewed as a complimentary asset class and used alongside investments, savings, etc., as opposed to an alternative asset class.  And I think it’s quite often viewed as an alternative, not as that complimentary.

Roy:            I couldn’t agree more.  I mean, it’s interesting when you look at pensions, which a lot of wealth managers obviously are highly invested in, is that the fact that, “What is a pension all about?”  Well, you’re preparing for a day when something’s going to happen, which is, you’re going to stop work.  Okay?  So, if you didn’t have a pension, you would be in trouble.  So actually, there’s a negative in that, if you think about it.  And I think it’s really important to realise that for holistic advisors, that the two subjects actually are as one and one has to underpin each other both ways.

Kathryn:       It kind of reminds me a little bit of probably the critical illness versus income protection debate in some ways.  You know, people seem to be – there was that thing of saying, “Well do you want critical illness or income protection?”  It’s a case of, “Well they’re not the same thing, you know, and in an ideal world, you need both.”  You know, it’s not just the case of, “Let’s do this and everything’s sorted.”  And I know you’ve got some really, really good examples, that I’m sure we’ll go through.  And there’s certainly – I know I’ve done it in my training and there was certainly – it came up in the Income Protection’s Task Force Awareness Week last week, where we had people like Victor Sachs, you know, talking about the need for cashflow modelling and how important it is to sort of, you know, do this wonderful cashflow, let’s get it all set up, let’s get this financial plan in place, but then be realistic as well and say, “Right, actually let’s look at the model where, I don’t know, in your mid-40s, your mid-50s, something happens and you can’t work anymore and then see what happens to the financial plan,” and if we suddenly start going into the red and if things don’t look as wonderful as we’d hopefully planned, then there’s absolutely a very clear visual representation there that income protection is essential to sort of like build that long-term financial plan.

Roy:            Yeah, I was going to actually ask you Andy, I mean, it’s strange isn’t it?  You say protection to wealth managers and mortgage guys and there’s a little bit of scratching of heads but I get the impression when you say income protection there’s more scratching of heads.  Do you know – the backdrop of such a great week as we had last week with the Income Protection Taskforce and their awareness, do you know why that is the case?  Why is it that income protection still seems to be the one that people just don’t get their heads round?

Andy:          I think I’ll start off by saying I think the Income Protection Awareness Week was excellent and actually there was a load of great information in there about promoting and selling more IP.  From a wealth advisor perspective – and I think you touched on it just now when you talked about pension planning, if we look at pension planning in reverse it’s about – it’s about sorting out a pension in retirement and then making sure that there’s a spouse’s pension in retirement, so it’s all about income and the income up to that point is – protecting it seems to be ignored.  Now some of that might well be that wealth advisors are less familiar with income protection than, as you say, mortgage advisors or protection specialists but I actually think some of it is due to misunderstandings or objections.  And I’ve heard things like, “Well, my clients are quite wealthy, they’ve got savings, they’ve got investments, so they don’t need income protection, because they’ve got more than one month’s worth of salary to live upon if they were ill.”

There’s the old adage, “It’s too complicated.”  Well, compared to what?  And actually, it is the way in which you break it down and talk about it.  But I’ve even had the comments that talking about protection is seen as lower value or dirty business because of the commission and that people don’t actually even want to discuss it in case it sours that relationship with the client in some way.  But the thing I come back to – and I think Kathryn touched on this – is if you think about what wealth advisors do, they will regularly use budget planners and more specifically cashflow modelling.  So they’re already doing a big part of the process that plays into income protection.  So if they built into the process that just reflecting with clients at that point – instead of just talking about how much income do you need in the future to cover your living expenses – what about what happens if you can’t work, you have a serious illness or, God forbid, you die prior to getting to retirement?  How are your family going to manage?  And building it in at that part of the process because you’ve already done so much of that work.

And what the pandemic has also shown is clients that need to dip into their savings and investments to maintain their lifestyles, it was quite a big step and it potentially has put a lot of peoples’ goals, savings, aspirations back because of that.  So the thing I always say is, “Let’s just consider this.  What would happen if the client couldn’t work?”  Well, there’d be no new investment monies, no new pension contributions certainly during that period and how would that affect their retirement plans on the short or longer term?  What if they then needed to actually withdraw and access some of their investments and their savings and even maybe access their pension monies early, whether it’s to live upon, or to do adaptations to the home?  And what impact does that have one the families?  Maybe planning for university for children, wedding for daughters and the like.  And also – almost sort of what is the impact upon you and your business as an advisor?  So what’s that going to do to your advisory income?  It could reduce it because the value of the investments has gone down because of the withdrawals and the like.  And suddenly, then people start to take note a little bit more, because not only is it hitting the client but it’s potentially hitting the advisor as well.

And I’ve always said, rightly or wrongly, that I think income protection should always be the first form of protection taken out.  I know that as an industry in the past, we’ve always talked about life insurance first, but the reality is, if you haven’t got the income to pay the premiums, it doesn’t matter what other forms of insurance you’ve got because you can’t afford to pay them.  So, you know, for wealthier clients I think income protection does work.  Now, it may well be that taking into account their wealth, you use longer deferred periods or limited claim periods or shorter policy terms that fit around the monies that they’ve got and that, if it’s an issue, can help keep the costs down.  But the bottom line is some income protection is far better than none at all for these clients.

[010:54]

Roy:            Yeah, I think you’ve just hit the nail on the proverbial head.  It’s very interesting, what we’re talking about, obviously for our listeners, is the concept of self-insurance.  And it’s something that I often think is more in the advisor’s head than the client sometimes, i.e. we believe that this guy or this lady’s got loads of money or loads of investments or loads of ISAs and actually, if they were ill it would be fine because they could fall back on that.  Very, very dangerous and you’ve just exemplified why.  It’s – it could actually be a relatively short-term illness, you know, a year or two.  But your pension savings or ISA savings or whatever you’re accessing, could be desecrated.  And of course if you get timing wrong and you’re accessing them and it’s at the same time that the stock market’s going down, you’ve got that double bubble effectively, so it – self-insurance is a very, very risky game of Russian roulette isn’t it, Andy?

Andy:          Oh definitely.

Kathryn:       I’d say it – I do apologise as well if there’s any crackling noise, my puppy has found a packet of baby wipes and has decided he wants to bring some music to the podcast.

Roy:            That’s the first time I’ve ever heard that on a podcast.

Kathryn:       It’s bound to happen on a podcast with me.

Roy:            No, I think Peter Crouch said something similar last year, but anyway –

Kathryn:       Oh, alright.  I think something that stood out for me is that you were just saying stuff then Andy as well is that – because I had this with one of my team and they’ve asked me and they’ve basically said, “This person’s earning £10,000 a month, why do they need, you know, income protection?  Why on Earth?”  And I think – straight away – sort of like for me it was just a case of, “Well that person that’s earning £10,000 a month is probably living very much to those means.  You know, they’ve probably, you know – from this situation, you know, this person had a number of children in private schools and they were good prices, you know, that they were having to pay for those, there was lots of other things, there was the upkeep of the home.  The home was one that had a lot of nice extras to it that were quite costly, needed a lot of maintenance and what I said to them was that actually if they were ill and they didn’t have anything coming in, their actual – the financial shock to them could actually be even more than somebody who earns a lot less.

Because somebody who earns a lot less doesn’t have all these extras.  They don’t have – they still have obviously, a very nice probably standard of living and they still – but they’re probably even more used to budgeting a bit more than somebody who’s earning quite a lot of money.  And so really, I don’t think – I think it’d be quite a dangerous mindset to think, “Oh well, ‘cos someone’s got lots of money, they don’t need something like this.”

Roy:            Yes, but more importantly, you know, illness does not discriminate by one’s wealth.

Kathryn:       Absolutely.

Andy:          Indeed.

Kathryn:       Absolutely.  So obviously, I know that the income protection side of things – obviously I find that fascinating – there’s also the chat at some point about potentially the parents – protecting the bank of Mum and Dad as well I think, with the income protection policies.  Is that correct Andy, where we sort of – ?

Andy:          There’s an age old angle where, you know, if you’ve got Mum and Dad and then you’ve got a son or daughter and the grandchildren and let’s say the son is, I don’t know, a central heating engineer or a plumber or something like that.  A manual worker.  And if he has an accident or is off work ill and again can’t pay all of the debts and the like, so that’s where Mum and Dad come in and the sort of day to day support it is great and goes a long way but it will get to a point where they need some financial support.  So Mum and Dad may be retired, may have a reasonable pension, may have taken their tax-free cash sum etcetera and will be willing to help out to start with.  But the Bank of Mum and Dad can only go so far until it starts impacting upon – in this example let’s say their own retirement.  And then, you know, it gets to a point where perhaps like, “Well if we don’t have any more money from – support from Mum and Dad, we’re going to have to downsize or going to have to move and we might have to move out of the area and the kids come away from school.”  And then you get this sort of almost emotional blackmail side of things.  And that can be a really difficult situation and I’m sure many, many families have seen that during the pandemic.

So, the age-old example is, in order for the parents to protect their lifestyle as well as protecting their children and/or grandchildren is – and it works even better if they’ve got an IHT problem because it helps to reduce their IHT issue, is they pay the premiums on an income protection plan for their son or daughter.  So if their son or daughter then is off work ill, the income protection plan kicks in, it stops them having to take money from the Bank of Mum and Dad and it protects Mum and Dad’s retirement and as I said, if those premiums are coming out of an IHT-able estate, effectively they’re also, if you like and this is artistic licence, but they’re effectively getting 40% tax relief on those premiums that are coming out of their estate to pay for the income protection policies.  So, you know, it’s been mentioned many times in the past and it could be used in a number of other different ways as well but I think it still is very topical and works as it’s always done.

Roy:            It’s exactly the same theory as to why a lot of inheritance tax joint life second death plans are paid by the recipients rather than the parents.  Because, if you think about it, it’s the recipients that have got the tax bill coming their way, when you work out the tax bill and tell them – I have lots of examples where families effectively pay the premium between them because the parents have got the IHT bill but it’s not their bill, it’s their kids’ bill and ultimately, you know, sometimes helping pay the – and as we both know joint life second death policies are very, very cheap when both parents are alive, it’s exactly the same principle, isn’t it?

Andy:          Yes, yes.

Kathryn:       I think that the next thing that you’ve sort of like gone onto in the training, I think it was the next thing, I could be wrong and getting my timings all mixed up, was this concept about as well around the equity release side of things.  And I find that, you know, it’s something that’s really standing out in my mind at the moment, because I’m an ambassador for Parkinson’s UK – my Dad has Parkinson’s.  And, you know, I think there was this big thing, potentially of people with health conditions who are maybe thinking, “Right, I need to get some equity out of the home because I need to do this, I need to do that,” and I’ve always been a bit worried actually about what that could mean, especially if people aren’t really getting advice, especially in potentially how to protect themselves.  But I know that – sort of going a little bit away from that though, you’d spoken about using equity release I think it was, to help fund children’s deposits for their homes.  I was just wondering if you can sort of go through that concept please?

Andy:          Yeah, so I’d probably just sort of put a warning at the start of this one, which says, “This is just another option amongst many other options for intergenerational support or even for paying off equity release,” okay?  So, you know, take it for what it is in that respect.  I also say that the equity release industry has improved massively with far more products and innovations over the recent years than it perhaps was five or 10 years ago when maybe our parents or other people may have used it.  But there’s two sides to this, so there are – we’ve talked about the Bank of Mum and Dad but not everybody is fortunate to have money, cash, that they can give to their sons or daughters to help them on the housing ladder.  Although we did see the Bank of Grandma and Grandfather give an awful lot of money during the pandemic to help a lot of first time buyers get on the housing ladders.

So if you were in that situation but you’ve got a property, so you’re asset-rich, cash-poor, you could use equity release and many people do to – rather than wait until they pass on, then the value of the property goes to the kids, which could be 10 – five, 10, 15 years down the line, they do equity release out of their property, they’ll give that money to their children, grandchildren, whatever.  So they can see them get on the housing ladder.  They can enjoy the grandchildren, whoever, sitting in their house while they’re still there.  When they then pass on, typically, because a lot of equity releases are interest only, I know you can do some capital repayments as well on them, it reduces the value of their estate or it’s the first port of call, and the reduced amount will get passed on.  But at least, you know, that’s the traditional way of it happening.

What you could then do, is if you do the equity release to do that, they could also take out a whole of life policy which on their death pays out an amount which is equal to what the outstanding equity release loan is, okay?  If you’re not even paying interest off, you could even add indexation to the sum assured so that that replenishes or pays off the equity release so that even then, not only have they seen their children or grandchildren get on the housing ladder whilst they’ve been alive, but it means the full value of the legacy also gets passed on – so in later years.  As I say, that doesn’t work for everybody, but it’s another option to consider for people that might be in that situation.

[020:18]

Roy:            And it’s another great example of why we shouldn’t look at financial services products in silos.  You know, this is why, if you’re talking about pensions, equities or whatever it is, we should be talking about protection alongside and not as an afterthought, as well.

Andy:          It’s the old adage of mortgage advisors – I always say, the mortgage advisors’ patter should be, “I’m not only going to help you get in your home, but I’m going to help you keep your home and stay in it, if you’re ill or die.”

Roy:            I mean, obviously, the segway from equity release is very much something else that’s in the news at the moment with the health and social care levy because clearly the situation we have with people going into long-term care and the absurdity of the £23,000 rule is being currently looked at.  Now we’re an apolitical podcast, so we’re not going to cast any aspersions clearly but that has some serious ramifications for financial services actually Andy, doesn’t it?

Andy:          Yes, I mean, I think the good thing about what we’ve heard is that, you know, we know what the limits are now for capital means testing – income means-testing.  We know that the maximum amount that anybody would pay for care costs is £86,000.  But the devil as ever, is always in the detail around the local authorities and the fact that you have to pay your so-called hotel costs on top.  And, you know, the total amount that you end up paying depending on the type of home you’re in and the like could be quite a lot more particularly regionally based.  But nonetheless, people do have an idea now of what the total cost is going to be.  And that means that they can potentially start thinking about how they fund for it.  Now, one way could be to put more money into your pension going forward.  Another way could be to do more investments and savings.  And then there’s various types of annuities or even long-term care insurance.  A whole range of different options on that.

I’ve got a somewhat simpler one.  I’m a fairly simple person from the West County, as you’ve probably told by now from my accent.  And from a protection perspective, you know, alright we can’t say what the exact overall cost is, but let’s call it, let’s call it £150,000 including hotel costs for argument’s sake.  Now many people – that will go as a debt against their estate.  For other people, they may be able to afford it, albeit it’s still reducing their estate.  And if we think about intergenerational planning, you know, the next generations haven’t got the benefit of, you know, very low mortgages like us or our forefathers had.  They haven’t got the benefit of the final salary pensions and the whole host of other things that I’m sure a lot of people will be thinking of as they hear me saying that.  So many of the people now that are potentially going to incur these health and social care costs going forward are lucky enough to be sitting on reasonably sized estates, whether it be property or property and savings investments and will want to ideally fully pass that on to the next generations, but if they’re going to end up getting hit for let’s say £150,000-worth of overall costs, it will be quite a big impact.

So one way of thinking about that is to put a protection policy into place and it can be single life, joint life, first death or even second death.  There really is a variety that you can do there to effectively replace those monies that may well be spent on those care and accommodation costs so that the value of the estate does get passed on fully intact.  That is just one option.  I’m sure as an industry and as more information starts to come out and it becomes more clear, hopefully as an industry, we’ll start to see some maybe further innovations that can support these health and social care costs.

Roy:            Yeah, it’s fascinating.  I don’t know how closely you two have been following the debate, but time and time again, you see people stand up in parliament and say, “Well if you’re not going to do it, you just insure against it.”  Now, Andy and I have been around slightly longer than you Kathryn and we know that the industry tried to invent something along these lines, you know, what was it, 20-odd years ago – and it didn’t work.  I don’t know who’s been telling these MPs that there is an insurance policy around but basically it doesn’t really exist does it?

Andy:          No, no.  I mean, there’s been, what is it, long term care insurance policies, where you pay quite significant premiums and they will pay towards the cost of your care up to a certain level, but as we’ve said, the cost of care varies massively, not only just between regions, but between different care homes.  And the care homes typically that – let’s say where your local authority funding may put you may not necessarily be the ones that you would want to put your loved ones in.  And therefore, it doesn’t – none of these solutions really ever pay the full costs of what’s going to be required.  And that has been sort of skirted over unfortunately.  The big headline is the £86,000 but that’s not the be all and end all of it sadly.

Roy:            So with your idea, which I like by the way and Kathryn and I have had a previous podcast where we talked about traditionally – insurance policies tended to end in people’s 50s, is this another reason for us as an industry going back to the drawing board and thinking about ones’ protection needs actually, are probably going to go into your 60s, 70s, 80s, maybe even 90s?

Andy:          Yes and I’m very passionate about one of the first forms of term insurance that we all learnt about.  It’s not the level term, its not the decreasing term, it’s convertible term insurance.

Roy:            Yeah.

Andy:          And I’ll tell you why that is.  Well, first of all, I’ll say, I’d ask the audience to think about when the last time was they talked about convertible term and I suspect it was some time ago.  And that’s because it’s often regarded as a bit old-fashioned and also because there’s only two providers in the market, okay?  Now for me, if you look at what happens with protection, lots of people will take out a temporary term policy that either ends when their mortgage ends or when they retire.  They then get to their – we’ll call it the golden years of their lives in their – let’s say early 60s, where they’ve got no protection.  Now they may not need it at that point but then as time goes on maybe – maybe their health starts to deteriorate, maybe they start to have an IHT problem and they start to think, “Ooh I need some protection.”  And we’ve been talking for many years as an industry about people that do IHT planning far too late in life.

Roy:            Yeah, yeah.

Andy:          Convertible term – it covers them for the period that they need and before the end of the term, or a certain age, it gives them the option to convert to a whole of life policy, partially or in instalments, so in full, without any further medical evidence.  So it futureproofs your clients’ health conditions if you like because you can then convert to a whole of life at that point.  Now I know the price is going to go up because whole of life premiums are more expensive and it’s based on the age at the time, but it gives you that continuation option and for many, many people and certainly as an industry, as I said at the start, more people are more open-minded to thinking and wanting protection now.  Sadly an awful lot of those people do have underlying medical conditions.

Roy:            Yeah.

Andy:          Okay?  And that’s the same when people get to their 60s or 70s.  So I see that as a great stepping stone from temporary to whole of life insurance.  So maybe there’s more that as an industry we can do to think about that and talk about that to give people that continuation.

Roy:            That’s another great example of why we should collaborate more and that’s the reinsurers – the insurers, us guys you know, various industry people.  I mean is there a call here maybe to the industry to come together and talk about the health and social care levy in particular and its relevance to us because I think, again, we are pretty immersed in this.  Because firstly, these are our clients, secondly you’re absolutely right, part of the solution is better pensions and better savings, okay?  But thirdly there’s undoubtedly an insurance part of this as well and I think a collaborative, you know, approach to this, I think would go down very well particularly with – potentially Government as well of course.  Because ultimately, these costs will get passed to society and if you take a leaf out of auto-enrolment’s book, the reason why auto-enrolment has gone down so well is that we’ve somehow convinced 15 to 20 million people to take out their own pensions.  Now it’s the same principle, isn’t it?  Because that is effectively, you to look after yourself in a time where you might have 30 or potentially 40 years, you know, non-working.  So for me, it’s the same principle.

Andy:           Yeah, so you know, I think the Government’s already set the industry the challenge to come up with a product as such or a solution and I think, you know, there’s been some articles where the ABI have commented about, “Yes, as an industry we can start moving forward now.”  I mean, I do think there’s more detail that we need, but yeah, certainly collaboration across the industry.  And as I said again at the outset, protection is a complimentary solution as opposed to an alternative solution, so it could form one of the legs if you like of that three-legged stool to pay for these costs going forward.

Kathryn:       That’s it.  Sorry I’ve been a bit quiet there, but Fudge has decided he is going to steal my new pencil case.  So he’s just walked in a little while ago with a unicorn pencil case and a big sparkly bobble in his mouth and he’s just – we’ve been staring each other out essentially.  So I have heard what’s going on though, I haven’t run away, I’ve just been – we’ve been having a battle of wills.  He’s won.  So I’m going to go and get it off him after the podcast.  I think there was something that you were chatting about before Roy, and I think we’ve said we were possibly going to try and bring it in.  Like you were saying then Andy, about things being complimentary and maybe as well how people are just not understanding how much all these areas need to work together to sort of really – sort of like secure financial planning.  Because Roy, you were saying you had seen a statistic about women drawing out their pensions and do you want to go through that?

[031:00]

Roy: Yeah, I mean, it was in Corporate Advisor the other day and I’m still flabbergasted, but John Greenwood assures me that it’s spot on.  Thirty-three per cent of women access their pensions at 55.  Now for our listeners – our uninitiated listeners, hopefully most of you realise that currently you can take your pension at 55 but in reality most people shouldn’t and probably can’t, but if a third of women are accessing their pension at 55 this has huge ramifications and it really sets some alarm bells, you know, ringing.  And when I read that, for me, it’s not just about pensions, it’s not just about savings, it brings the whole concept of protection in as well.  What are your thoughts on that, Andy?

Andy:          I think – I mean, totally agree with what you said in terms of the stat and I think the stat went onto say that actually it was a third of the women – not only were they accessing their pension from age 55, but they were taking their 25% tax-free cash sum out.

Roy:            Yeah, sorry, it was a 25% tax free cash, yeah, yeah.

Andy:          And slightly unbelievably and I guess this is probably where advice does come in, they were putting it into low interest savings accounts.

Roy:            Yeah.

Andy:          Now, sometimes to people that don’t have advice and they access the money, then there’s this feeling that, “I have to take the money out, because then I can keep control over it,” but you’ve still got control of it when it’s in your pension, okay?  And arguably, it’s in a much safer environment if it’s in the pension because you’re not getting any tax on it than if it’s put in a low-interest savings account.

Roy:            And no temptation.

Andy:          No temptation.  Now obviously, some of those and the research does go on a little bit to say some of those, but a low percentage, were using it for home improvements, that type of thing.  But the traditional reasons why people would take the monies typically were to go on holidays.  Well we’ve not unfortunately been really able to do that in much that and I just think that maybe, some people have accessed it, whether it’s because of the pandemic and maybe they’ve used up some of their investments and savings and therefore they want that comfort blanket to think, “It’s in the bank account, I can access it whenever I want,” although clearly, that’s slightly mistaken.  The problem is, a lot of people taking their money that early – you’ve then got, I don’t want to use the vulnerable clients bit, but arguably, if that money’s used up quicker than it should be, it will be exhausted quicker than it should be and then in the later years when they perhaps need some access to more money, that’s when it potentially causes a vulnerability.  So as ever, whether it be protection, whether it be investment or pensions, advice is absolutely crucial and I know that we’re preaching to the converted here on today’s podcast but that is really important.

I think Kathryn’s challenge to me was about where protection could come into this and this is slightly skewed from the point that you made Roy in terms of the stat but is spouses’ pensions, okay?  And particularly maybe final salary-orientated spouses’ pensions.  So cashflow modelling plays a big part in this to see whether or not – on the death of the main pension recipients, there’s going to be a shortfall between what they need and what they’re going to receive.  Now again, there’s many ways of replacing this and we could talk all day long about pension transfers, where they’re appropriate, or where they’re allowed, particularly for public sector schemes, those are additional savings and investments.  But there is a protection angle and this – all of these ideas have come from advisors over past years of working as a wealth specialist, so they’re not mine.  And what some of them have done is, they work out the shortfall in the spouse’s pension, they convert that on annuity rates at a certain age and typically in the mid-to-late 70s, as a lump sum. And then they compare what the cost of insuring that would be through a whole of life policy, written in trust, on the death of the main pension recipient to generate that lump sum.

That lump sum is then outside of the estate and the surviving spouse can either call on the monies as they wish, bit by bit, or they could use the money to buy an annuity to top up the spouse’s pension.  And as I say, it’s just another option, you can see what the premium is and you can compare that to what it might be in terms of how much per month you would have to put additionally into your – into a pension plan, into a savings plan or whatever it might be, to make up the difference.  In a lot of cases, it compares quite favourably.  Where there is a price challenge then again you can show the value that it’s adding but convertible term could also be an option.  Because convertible term on a single life basis can run up to typically age 83.  And if someone is going to die prematurely and leave the spouse in a hardship situation, it’s going to be typically before age 83, because actually your spending starts to go down as you get into your late 70s, your budget doesn’t need to be as great.  So it’s another option alongside lots of others.

Kathryn:       Absolutely.  Well thank you obviously Andy, it’s been – I’ve found it really fascinating to sort of like hear all these different aspects of it and I’d say, I know you did some training for me, so I was just wondering if you wanted some – sort of like a few minutes to tell people how to get a hold of you, with the different things that you can do to help people and do this more like – maybe more on a maybe one-on-one or small group basis?

Andy:          Okay.  So the presentation that I did is one that I did a number of years ago and some PFS regional roadshows and it was called Why Protection Should Be A Keystone Of Your Wealth Clients Plans.  So it really does say what it is on the slide – it’s bringing wealth and protection together.  And all the examples, of which we’ve covered a number of them today, are included in that and more.  Just to lay it out as, you know, different options to be considered.  So it’s certainly something that I do webinars on at Zurich.  One or two or my colleagues at Zurich also do webinars on this as and when.  So, you know, what we tend to do is if there is a firm out there that would want a webinar on this, to them and their advisors, paraplanners etcetera – so that there’s a reasonable sized group of people, then if they get in contact either with myself or through your normal Zurich business account manager, then we can set something up and arrange that with you.

Kathryn:  Fantastic.  Thank you.  Well thank you obviously for your time today, it’s been really lovely to chat to you and to hear about how, you know, we really do need to make sure that there’s much more of this integration.  And I think it’s probably going to what Roy would usually say as well, it’s that thing of, you know, if you are – if you are a wealth person and you don’t want to do protection, signpost to somebody that does.  And if you are a protection person who doesn’t do wealth, then equally, if you find somebody and you’re in that situation, send them the other way as well.  And, you know, just to make sure that you’ve – I think it’s a massive thing to make sure you have a really good network, you know, make sure that if there’s somebody in the protection space like me, make sure you’ve got a private medical insurance expert, a travel insurance, a wealth, a pensions, you know, make sure you have all of these types of people – and mortgages – that you can send people to, that you know are going to be treated well.  And then again, the relationships do come back the other way too.

Roy:            Yeah, I would totally back that up.  Every time I hear someone like Andy speak, I just think, “This has got signposting written all over it.”  And it just proves that, you know, once again that we can’t be siloed and if listeners are listening to some of the brilliant things that Andy’s been talking about in terms of pensions and investments and are thinking, “Yeah, that’s not quite my area,” remember signposting does work the other way, but equally there will be wealth managers in a town close to you right now, who are probably nervous about coming the other way.  Go and talk to them and we should have these – I mean Kathryn and I have already seen some brilliant strategic relationships growing this year between wealth and protection and mortgage and employee benefits and I think this just – Andy, your words just endorse signposting, even though you haven’t used the term yet.

Andy:          One last thing I’d just like to add is, you know, we are going through the first half of 2021 claims from all providers.  And if we just look as an industry, the hundreds of millions of pounds that have been paid out, not just in the first half of 2021, but 2020 – not just to people that sadly have passed on because of Covid, but for people that have died, had serious illnesses, been off work ill, the hundreds of millions – the billions actually, that have actually been paid through protection, supported clients and their families through extremely difficult times.  It just goes to show that protection and us as an industry, are really – have been there to support clients through these times.  And that’s why protection has to be a cornerstone of all of our recommendations.

[040:43]

Kathryn:       Yeah, brilliant thing to have finished on there Andy, thank you.  Next time, I am going to be back with Matt Rann and we’re going to be talking about lupus.  And Roy, I think us two will be back together in about a month or so with a new guest.  If anybody would like a reminder of the next episode, please drop a message on social media or visit the website, practical-protection.co.uk and don’t forget that if you’ve listened to this as part of your work, you can obviously claim a CPD certificate through the website thanks to our sponsors, OctoMembers.  So thank you again Andy for joining us today.

Andy:          Thank you both.

Roy:            See you soon.