25 March 2015
Car keys but no driving lessons
With 57 per cent of retirees unlikely to seek advice, Brewin reveals that they could be losing five years of income.
Brewin has developed a calculator http://pensionfreedoms.brewin.co.uk which will allow you to put in any level of pension pot and work out how long it is likely to last in drawdown using various levels of risk.
Britain is facing the biggest changes to its pension system in over 100 years, giving millions of people full control of their retirement savings. But is the country ready for it? Our survey and analysis suggests that, not only are they woefully unprepared, but that the taxman could be the biggest beneficiary of a system that hands people responsibility without appropriate training.
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, Brewin reveals. The state of under-preparedness is such, however, that many could simply throw this extra money away.
Our calculator, available at http://pensionfreedoms.brewin.co.uk, will allow you to work out just how long a pension pot could last compared to life expectancy, depending on whether a retiree chooses to take it as cash or puts it into a low, medium or high risk portfolio.
The case studies show the value of sensible tax planning and the stark differences unprepared retirees could face – either ending up living over 15 years on the basic state pension, when they could have had a far more comfortable retirement.
Our findings come from an exclusive national survey* of 2,000 savers approaching retirement, which shows that today’s retirees are in a precarious position as we accelerate towards 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.
Key Findings:
- Of those who knew the size of their pension pot the average size is over £163,000
- 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
- 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
Over half of the nation is planning to retire without advice on what to do with their pension, whilst someone with an average (according to Brewin Dolphin’s survey) £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 HMRC.
What will people do with their pension pot once they are given the keys to open it? 16% of retirees will need to use their pension to pay off debt, whilst a mere 6% have plans to invest in shares or bonds. Another 23% plan to put their money in a savings bank account whilst 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 new 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?”
Staggeringly, 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. “As a leading wealth manager, we’re seriously concerned that many people’s retirement will be crashed if they don’t get the help they need,” warns Stephen Ford, Head of Investment Management at Brewin Dolphin. “The survey we’ve undertaken reveals that, despite having significant pension pots in many cases, most won’t take advice and many are planning to simply withdraw their money into a poorly paying savings account that will leave them with an eye watering tax bill and no inflation protection.”
What lessons can be taken away from this? Those who spend time understanding their options and the tax implications of the changes will end up far better off than those who are simply seduced by the excitement of an initial cash pile.
Brewin Dolphin’s unique calculator, available at http://pensionfreedoms.brewin.co.uk, will allow you to put in any level of pension pot and work out how long it is likely to last in drawdown using various levels of risk, and will show you how long the money will last in cash. The message is clear – in finance, as in motoring, a few driving lessons can make a huge difference.
Brewin Dolphin commissioned survey* asked 2,000 people aged between 55- 65 years old. Below is a summary of the findings.
Pension pots
- Of those who knew the size of their pension pot the average size is over £163,000
- 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
Expected duration
- 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 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
- Only 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.)
- From our survey, less than 1% said they would invest it in a classic car like a Lamborghini
-ENDS-
For further information please contact the Brewin Dolphin Press Office on 020 3201 3026
Brewin Dolphin commissioned survey*
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2114 adults aged between 55-65 years old. Fieldwork was undertaken between 2nd and 4th February 2015. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
The value of investments can fall and you may get back less than you invested.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.
The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.