Averting a later-life financial crisis

More retirees drawing pensions without LPA’s

People are generally living longer these days. Increasingly, more people are living well into their 80s and 90s – and some even longer. This may mean you have a long time to budget for. That’s why it is very important to consider all your options carefully and think about what will matter to you in retirement.

As you will probably be aware from our previous blogs, the Government introduced ‘Pension Freedoms’ in April 2015, which means that you can now access your pension in more ways than ever before. Therefore, it’s important that you take time to think carefully before you decide what to do with your money.

Later-life financial crisis

According to a recently published report [1], nearly 80% of retirees who take advantage of the new pension rules to manage their retirement savings will face a potential ‘later-life financial crisis’ as they have not set up a Lasting Power of Attorney (LPA).

There are two types of LPA. These are the Health and Welfare Lasting Power of Attorney, and the Property and Financial Affairs Lasting Power of Attorney.

The same research found that 345,265 pensioners accessing their pension pots in this way have not yet given a family member or friend the legal authority to make decisions on their behalf if they were no longer able to do so.

Responsibility of managing income

The analysis highlights the scale of an issue that has emerged since the 2015 changes when the British government abandoned the requirement to buy an annuity at retirement. It has come to light that twice as many people are now opting for pension drawdown over annuities. In effect, this puts the responsibility of managing income in retirement onto the individual.

Therefore, registering an LPA has become even more important since the pension reforms. Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases. Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities, hence, the time to set up an LPA is well before you need it.

Potentially creating problems

With more and more people moving into drawdown, this is potentially creating problems that could leave thousands of people facing a possible later-life financial crisis. It is vital to plan for a time when managing your pension might become hard, or even impossible, and obtaining professional financial advice is one of the best ways to do this.

The Alzheimer’s Society has discovered that there are currently 850,000 people in the UK living with dementia and this could increase to over 1 million by 2025. Yet the report revealed that only 21% of retirees who have accessed funds under the new freedoms have registered an LPA.

Discussions with your family or others

A LPA can be a very important part of planning for a time when a person will not be able to make certain decisions for themselves. It allows you to choose someone you trust to make those decisions in your best interests. This can be reassuring and making an LPA can start discussions with your family or others about what you want to happen in the future.

The stigma around the LPA, as with dementia, is compounded by its links to mental capacity. Some people are reluctant to consider a future where they may not be able to make their own decisions due to the connotations they associate with this. In cases where LPAs are not in place, assets and equity may be lost, or those in a vulnerable position may be forced to make decisions they are no longer able to make.

Do you need help? Give us a call

Whatever your plans for the future, we are here to help you take the next step and if you don’t have your own Solicitor, we are happy to introduce you to a Solicitor who can help you with these requirements.

 

Source data:

[1] The study for Zurich UK is based on a YouGov survey of a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced in April 2015. The survey was carried out between 14 December 2017 and 24 January 2018.

FCA Data Bulletin (issue 12) shows 345,265 pots moved into income drawdown between October 2015 and October 2017. Assuming the number of people moving into drawdown continued at a similar rate from November 2017 to April 2018, this would equate to a further 86,316 people in drawdown. 345,265 + 86,316 = 431,581 people.

345,265 / 2 years of drawdown data = 172,632 x 10 years = 1,726,325 people.

Warning:

The information noted above is for general information only and is not intended as personal advice. Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

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