According to some new research by Age UK, millions of us could run out of cash in retirement.
This is due to pension rule changes coming into force in April, allowing unrestricted access to pension pots from age 55.
As a result, Age UK is concerned that millions of pensioners will run out of pension assets by age 75.
They presented a scenario in their discussion paper Dashboards and Jam Jars, assuming a pension pot of £29,000 which increases at 3% a year in retirement. Assuming a 65 year old withdrew £3,000 a year from their pension pot, it would reduce to zero in ten years, by age 75.
If they withdrew £2,000 a year from their pension pot instead, it would not run out until age 81.
Here in the UK, we don’t face the same ‘risk of ruin’ as they do in the United States, as the State Pension system acts as a safety net.
However, retirees will have to be very careful to ensure their pension pots do not run dry too early. Put simply, people will need advice as they enter retirement so they can make sure their pension pots last for life.
Calculating and monitoring a safe rate of withdrawal from pension pots is something an Independent Financial Planner can help you with.
Today we have seen details published of the new guidance service, funded by the financial services sector and to be called Pension wise.
At a cost to the financial services sector of £35m in its first year, this will offer guidance (not advice) to those reaching retirement. Face-to-face meetings, run by Citizens Advice, or telephone conversations with The Pensions Advisory Service are expected to be 45 minutes long and their final structure is still being defined by HM Treasury.
In our experience working with individuals reaching retirement, 45 minutes is insufficient time to deliver much of any real value, other than a very basic overview of some of the pension options.
If you are approaching retirement during the next five years, you will need advice, and not guidance, to make suitable decisions about your pension pots and manage assets carefully for the rest of your life.
