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Only 34% of UK retirees prepare before using pension freedoms

Retirement planning is ‘not easy to self-regulate’ and can be an ‘uncomfortable process’


Thousands of UK retirees are shifting their pensions into drawdown but not working out how much they can afford to take from their pot – leaving them at risk of draining their savings, according to research.

Insurance firm Zurich surveyed 660 retirees who have used the pension freedoms, which were introduced four years ago.

Some 435,000 people in the UK have used the initiative since then.

However, not all were prepared to do so, as the survey found only a third (34%) of retirees in drawdown calculated how much income they would be able to generate from their pot before retiring.

The same number of retirees considered how much money they would need to cover day-to-day living expenses, as well as considering how long their money would need to last, be it 20, 30 or 40 years.

Self-regulating problems

“Budgeting properly and projecting your expenditure accurately can be an uncomfortable process,” Ian Browne, pensions expert at Quilter, told International Adviser. “Many of us would struggle to work out where our money actually goes and only budget very roughly, if at all.

“Planning your retirement is not something that is easy to self-regulate.

“It means being honest with yourself about affordability, exhibiting foresight to plan for the unexpected, and having the discipline not to over-estimate realistic market returns or take on too much investment risk.”

Peter Bradshaw, director at Selectapension, also told IA: “From the research, it looks like the pensions freedoms are working, giving people access to their pension pots when they need it.

“It’s not clear, but assumed, that withdrawals are spent rather than invested elsewhere, as savers go for flexibility rather than the guaranteed income provided by an annuity.

“As the average pension pot is less than £125,000 ($164,000, €145,000) it seems many aren’t prepared to pay for advice, which they may consider expensive in relation to the size of their pension pots, or don’t see the value in contacting an adviser.”

Planning for the worst

The Zurich survey also found retirees are not the only ones a lack of planning will impact; it also has consequences for people who are set to inherit – specifically spouses and partners.

Just one in five (19%) retirees in drawdown said that their partner has the financial knowledge and understanding to continue managing their investments.

Only 15% of retirees have put a financial plan in place if they or their partner were to die.

Alistair Wilson, Zurich’s head of retail platform strategy, added: “Many people don’t like talking, or even thinking, about themselves or a loved one passing away.

“However, to pass wealth efficiently and not leave loved ones swamped by complex financial decisions it’s important that those set to receive inheritance are engaged with financial conversations from the outset.”

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