Financial tips for the disabled
No one ever thinks it will happen to them but the reality is that all too often fate steps in and thousands are left disabled every year.
While disability is regularly perceived as a lifelong condition, the reality is that more than 80% of people with a disability were not born with it and their situation is a result of an accident, illness or a deteriorating medical condition, according to the NHS.
Official numbers show that every year more than 150,000 people have a stroke, while thousands of others are seriously injured on British roads and also at work.
For those who have been left disabled, be it through injury or illness, the life change can be huge and managing finances might at first be far from their thoughts – but the financial situation can also be a tough hill to climb. In such a situation, many are left unable to work again and may need to make expensive home alterations in order to accommodate their circumstances.
We look at what help there is available and how best you can make your money work for you if any of the above is a concern.
You are most likely to be entitled to some level of financial support as a result of an accident or illness, as you may be able to claim different benefits and tax credits.
For those aged 16 to 64, with a long-term health condition or disability that affects their ability to live independently, they may be able to claim Personal Independence Payment (Pip), which is replacing the Disability Living Allowance. Pip is designed to help with some of the extra costs brought on by ill health or a disability. For those with care requirements aged 65 and over, they may be able to claim Attendance Allowance.
Aside from any insurance policies you may hold, if you are unable to work as a result of your disability, you may also be entitled to Statutory Sick Pay or Employment and Support Allowance. If you are still well enough to work, you may be able to claim the Working Tax Credit. If you are - or have been – injured as a result of your employment, you may be able to claim Industrial Injuries Disablement Benefit. Those who care for someone with a disability may be able to claim Carer's Allowance.
State benefits in such cases of disability may be means-tested, so what benefits someone may receive will be dependent upon the severity of their overall situation. In addition, according to the Citizens Advice Bureau, you could be entitled to VAT relief on products and services as well as lower council tax. There is also the possibility of getting money from the local council to help fund care.
For further advice on what help is available, go to adviceguide.org.uk.
A disability could mean a lower income, as a result of work loss and an increase in the cost of day-to-day life. Peter Chadborn, director at independent financial adviser Plan Money, explains: "In such circumstances, it is important to get down to basics as soon as possible by completing a budget planner. This is the only way to accurately understand your income and expenditure.
Plan for the future
"Look at fixed costs such as your mortgage and utility bills as well as variable expenditure, such as food and clothes shopping. When looking at savings and planning an investment strategy, be aware of the effect inflation will have on your future expenditure and allow for that."
For the clients of Frenkel Topping, a specialist financial advisory firm that provides investment advice for those involved in personal injury and clinical negligence claims, the first step is about looking to maintain any care and welfare benefits entitlements.
David Mulholland, an investment consultant at the group, says: "The premise of the law is that just because someone suffers personally through an accident, that does not mean they should be penalised financially. Our goal is primarily ensuring capital preservation for our clients. The more you preserve, the greater your investment returns over the longer term will be.
"Our clients want to derive an income from their investment. Many people who come to us are not just providing for themselves but for their family too, and for the rest of their life, so getting it right from the start is imperative."
Before any case settlement is made, firms such as Frenkel Topping will set up a personal injury trust in which to hold funds, because if someone receives a lump sum of more than £6,000 into a personal bank account their means-tested benefit entitlement will reduce. If they receive more than £15,000, it will stop completely.
Chadborn explains: "A trust essentially ring-fences any payout a claimant may receive in order to protect them from losing their welfare benefits. These trusts are there to protect people from losing their benefits, which such people deserve."
While someone might have received a sizeable payout as a result of an accident, at the same time they may have to make this cash last for years, especially if they are not working. Some cases – and bear in the mind the legal process can take years – are awarded a lump sum, while others receive ‘periodical payments', which are regular payments made to the claimant tax free - paid for by the defendant's insurers. "For someone who has significant care needs, the provision of a guaranteed tax-free income for life is hugely important," adds Mulholland.
When it comes to looking at investments, many firms will use a risk-profiling tool to ascertain an individual's appetite for risk. Mulholland explains that he often works with so-called risk-targeted multi-asset portfolios. A risk-targeted fund looks to maintain its level of risk over time.
In essence, the point is that the investment portfolio will achieve strong, risk-adjusted returns while staying within a specific risk profile. These multi-asset funds invest in a spread of different assets to ensure their clients' eggs are not all lumped in one basket. A typical portfolio will have, among others, an allocation to shares, bonds, commercial property and cash.
"A typical portfolio tends to have 5% in cash, maybe 40 to 50% in bonds, about 10 to 15% in commercial property, with the remainder spread across major market equities, such as the shares of US and UK firms," says Mulholland.
Mulholland recommends those with disabilities and unable to work still save what they can into a simple stakeholder pension. Stakeholder pensions, introduced by the government in 2001, are easy to understand, low cost and flexible personal retirement savings plans. With a stakeholder pension, non-earners, including children, can get basic-rate tax relief on contributions up to £3,600 a year: in other words, if you pay in £2,880, the taxman will top it up by a further £720.
You can contribute lump sums or make regular payments, stopping and starting as you wish without penalty. You can also transfer your pension fund to another provider without penalty.
When you get access to your pension, from age 55, you can take up to 25% of your nest egg as a tax-free lump sum and use the remainder to purchase an annuity, which will give you an income for life, the level of which will depend on how much your remaining 75% left is worth; as well as, among other factors, prevailing annuity rates.
However, Chadborn warns: "Pensions are relatively inaccessible, so are only appropriate if access to capital is not required."
For someone with a disability or certain medical conditions which has potentially lowered their life expectancy, they will also certainly be able to apply for a so-called impaired annuity, which will pay out an income greater than that of a standard annuity because the provider will expect to have to pay your income for a shorter period, as a result of the lowered life expectancy. An impaired annuity could pay out up to 30% more but, again, it will depend on individual circumstances.
Tax-free lump sum
An inelegant phrase that is nonetheless accurate in what it describes: a one-off payment to a beneficiary that is free of any form of taxation. Usually received when using a pension fund to purchase an annuity, as 25% of the overall fund can be taken as a tax-free lump sum.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A form of money purchase defined contribution pension launched by the then Labour government in April 2001 with low charges and no-frills minimum standards. Designed to appeal to people on low and middle incomes who wanted to save for retirement but for whom existing pension arrangements were either too expensive or unsuitable, the stakeholder didn’t really take off and looks to be superceded by the National Employee Savings Trust (NEST).
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.