Survey reveals lack of preparedness
Retirees ‘failing to take tax-efficiency advice’
Sensible use of an ISA, investing in a tax-efficient manner and withdrawing a pension in stages could provide as much as five years’ worth of additional cash in retirement, wealth manager Brewin Dolphin reveals.
The state of ‘under-preparedness’ is such, however, that many could simply throw this extra money away, it says.
It warns that this could leave them living for than 15 years on the basic state pension, when they could have had a far more comfortable retirement.
The findings in a national survey of 2,000 savers approaching retirement shows that today’s retirees are in a “precarious position” following the biggest pensions revolution in decades.
“Most people are unaware of how long they are likely to live and the importance of tax planning, whilst many are planning to keep their pension in cash and will need some of it to pay debts,” the survey finds.
· Of those who knew the size of their pension pot the average size is over £163,000
· 23% said they would put their pension in a savings/bank account
· 57% said they would be unlikely to seek financial advice on whether to withdraw a lump sum from their pension
· 48% expect their pension pot to last them more than 10 years
· 16% would still use their pension pots need to pay off debts
· Only 6% will invest their pension in gold, shares or bonds
· 46% will rely on money in an ISA or other savings for their monthly retirement
· 24% will rely on selling their home/down sizing
More than half of the nation is planning to retire without advice on what to do with their pension, whilst someone with an average £163,000 pension pot is likely to run out of money within five years without advice, and could end up paying an unnecessary £50,000 to the tax man.
Some 16% of retirees say they will use their pension to pay off debt, while only 6% have plans to invest in shares or bonds. Another 23% plan to put their money in a savings / bank account and 8% will rely on buy-to-let properties to support themselves in retirement.
“It’s a bleak picture,” said Nick Fitzgerald, head of financial planning at Brewin Dolphin. “We’re all familiar with Steve Webb’s comment that people can spend their pension on a Lamborghini – but our research suggests that most people will be putting unnecessary money into the hands of the taxman, rather than spending it on anything fun.
“With proper help, Britain’s retirees could enjoy their final years, and really benefit from the pension freedoms, but the survey suggests many will drive off into the sunset without proper financial advice. You wouldn’t attempt to drive a supercar without taking a driving lesson first – so why do the same with your retirement?”
A further 57% of 55-65 year olds have said they would be unlikely to seek any financial advice on whether to withdraw a lump sum from their pension.
· 11% of 55-65 year olds think they will have no money in a pension pot when they retire
· 16% of 55-65 year olds think they will have less than £25,000 in a pension pot when they retire
· 22% of 55-65 year olds think they will have more than £100,000 in their pension pot when they retire, of which 4.5% expect to have a pension pot of over £500,000
· 27% of 55-56 year olds do not know how much money they will have in their total pension pot
Age of use
· 26% of 55-65 year olds have already started using their pension pot, of these, 6% believe their pot will only last them 5-10 years
· 7% of 55-65 year olds will start using their pension pots aged 55-59 years old
· Only 5% of 55-65 year olds will wait until they are 70 to start using their pension pot
· 31% of 55-65 year olds will start using their pension pot aged 65-69 years old
· 53% of 55-65 year olds will start, or have already started, using their pension pot before they are 65 years old
· 15% of 55-65 year olds expect their pension pot to last up to 5 years into retirement
· 27% of 55-65 year olds do not know how long their pension pot will last in retirement
· 48% of 55-65 year olds expect their pension pot to last more than 10 years
Required retirement income
· 6% of 55-65 year olds think they will need less than £500 a month to support their lifestyle expectations in retirement
· 22% of 55-65 year olds think they will need between £1,001 – £1,500 a month to support their lifestyle expectations
· 29% of 55-65 year olds think they will more than £1500 a month to support their lifestyle expectations
Other sources of retirement income
· 8% of 55-65 year olds said they will rely on income from buy to let property to support them in retirement
· 46% of 55-65 year old said they will rely on money in an ISA or other savings for their monthly retirement, whilst 24% said they will rely on selling their home/ downsizing
· 11% of 55-65 year olds said they will rely on family support or inheritance to support them monthly in retirement
· 16 % of 55-65 year olds said they will rely on income from stocks and shares for their monthly retirement
Intended use for pension pot
· 39% are considering investing in an income producing investment
· 23% will put it in a savings/ bank account
· 16% believe they will still need to pay off debt
· 6% of 55-65 year olds would invest it in gold, shares or bonds
· 24% will rely on selling their home/down sizing
· 10% of 55-65 year olds would invest in property
· 6% will keep it as cash
· 14% of 55-65 year olds would spend it on leisure activities like golf, going on holiday or a better lifestyle (eating out, going to the theatre etc.)
· Fewer than 1% said they would invest it in a classic car like a Lamborghini