Pension news: Thousands ‘at grave risk’ of running out of money in retirement | Retirement | Finance



Pensioners face scrimping and saving and ‘going without’ through their old age because they will have spent their pots too early, warns The Personal Finance Society today (MON).

They are exploiting new pension freedoms to withdraw huge amounts of money – or even their whole pension pots – yet massively under-estimating how long they are likely to live.

And a refusal to take expert advice or even guidance from the Government’s free Pensionwise service sees them £40,000 out of pocket straightaway.

“We are particularly concerned that people are underestimating their longevity,” said PFS chief executive Keith Richards.

“Many retiring workers could be faced with the realities of ‘self-deprivation’ if the funds are exhausted too quickly.

“This is compounded by the subsequent threat of benefits being disallowed if they were thought to run through their savings irresponsibly. It is a real and genuine concern.”

An obscure Deprivation of Capital clause in the UK welfare system means people who plunder their pension pots and blow the cash could find the safety net of State benefits snatched away.

This would mean no help towards expensive residential care costs for example.

Pension freedoms introduced three years ago in April 2015 allow savers over the age of 55 to cash in part or all of their pension pot.

Since then a staggering £17.5bn has been taken out of pension savings.

Latest figures from HM Revenue & Customs show £1.7bn was withdrawn in the first quarter of this year, representing an upswing of 10 per cent on the total accumulated figure.

A total of 500,000 payments were made in the quarter to 222,000 people with an average withdrawal sum of £7,644,

There is no need to buy an annuity with the money – a guaranteed income for life – people can spend their money how they wish.

There is no need to buy an annuity with the money – a guaranteed income for life – people can spend their money how they wish.

However latest figures from the Financial Conduct Authority found 72 per cent of the pots accessed were held by people under 65.

Most are choosing to take lump sums rather than a regular income and more than half (53 per cent) of the pots accessed had been fully withdrawn.

Around 80 per cent of the withdrawals were converted entirely into cash.

Mr Richards said: “While the chancellor might like the fact that much of this money is being ploughed back into the economy, financial planners are concerned at the relatively new phenomenon of ‘longevity risk’ – effectively, that many retirees are likely to significantly underestimate their own life expectancy.”

The number of people living in the UK aged 100 increased by 73 per cent in the decade to 2012 as life expectancy in Britain has reached its highest level on record for both men and women, according to the Office for National Statistics (ONS).

Official projections show living beyond 100 will become the norm for children born within the next generation, and one in five of adults currently under 35 will exceed a century.

The risk of poverty in old age emphasise the value of professional advice to preserve future income, added Mr Richards.

“People need to look at volatility points, holidays, ongoing income etc and how much money they will need when they stop working.

“Exhausting too much, too quickly, will have a profound effect in later years, so meeting with a financial planner is a vital step in order to face the future with confidence,” he said.

“Even those people with good pensions often just put the money away and never check how it is performing, with the consequence that their savings may not be sufficient when the time comes.”

Demand for advice has increased as a direct result of the pension freedoms and research by the International Longevity Centre UK and mutual insurer Royal London found those who receive financial advice are typically £40,000 better off than those who do not.


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