Millions risk financial welfare due to lack of understanding around Power of Attorney (POA), according to new research.
The latest analysis from mutual insurer Royal London has shown that half of the adult population are not aware of POA, which is a vital protection to help families when loved ones can no longer cope.
The study also revealed that of those who are aware of it, only one in three think they actually fully understand what it does.
POA allows people to appoint someone to make decisions on their behalf, should a time come when they lack the mental capacity to do so themselves. If the person has already lost mental capacity then the Court of Protection can appoint a deputy to make decisions on that person’s behalf.
Mona Patel, consumer spokesperson for Royal London, said: “It may be uncomfortable to think about not having the mental capacity to make decisions, but it is important to plan in case this happens. While official figures show nearly 800,000 registrations were submitted last year in England and Wales, it’s concerning that only a third of people who have heard of a Power of Attorney fully understood how it works.
“Appointing a family member or trusted friend to make financial or welfare decisions on your behalf stops the responsibility falling to the state and loved ones then having to apply to the Court of Protection, which can be emotionally difficult, time consuming and expensive.”
There are two types of POA but only 76% said that they had heard of a financial POA. Of those who haven’t discussed setting up a POA, 18% of men said this was because they didn’t think they would need it, compared with just 8% of women.
Among adults who know about POA, 48% are aware of a welfare POA, which covers things such as end of life health care decisions.
The study also found there was a lack of discussion on the subject, with 48% of adults not thinking they are at an age when they need to think about it, despite 34% being over 55.
Interestingly, 19% said the reason for not discussing it was because they did not want to think about being unable to manage their own affairs.
Commenting on this issue, Aj Somal, chartered financial planner at Aurora Financial Planning, said: “I am not surprised by these findings. Yes, there should be more awareness, perhaps a campaign, to make people aware of the benefits of doing POAs. It should be a compulsory question when advisers doing a fact find, alongside whether they have made a Will, in order to encourage discussion.”
Keith Churchouse, chartered financial planner at Chapters Financial, said it’s important that advisers encourage clients to make a will, so that they can consider and understand the importance of making POA arrangements in later life.
He added: “As a matter of course, we recommend that clients make Wills. For many, we also recommend that they seek advice from their solicitor or legal adviser on POA arrangements as part of their legal process – both health and wealth, noting of course that these can be arranged directly online.
“We note that a significant percentage of clients have not considered this option and we think it is vital if capacity is sadly lost into the future. Sadly, there are many negative articles in the press about hake POA arrangements have in a few cases been abused. However, when used correctly, add great value when needed to the financial planning process.
“As part of the ever-evolving long-term relationship with a client, we should be discussing and sign-posting these options at the appropriate.”
Mel Kenny, chartered financial planner for Radcliffe & Newlands, also commented in the need for POA arrangements. He said: “The process of getting one done is largely associated with older people and deteriorating mental capacity when in fact everyone should have one. This message is slowly getting across but still more likely to get done to avert an impending crisis. But illnesses such as a stroke give no warning or lead in time and so it is important for the profession to make people aware of the need to have a lasting POA in place no matter your age.”
Aamina Zafar is one of the UK’s leading financial journalists. She has previously worked as a senior reporter at FT’s Financial Adviser. The award-winning journalist writes regularly on the IFA community, mortgages, pensions and financial regulation.
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