The ‘financial planning blind spot’ putting thousands of retirees at risk
More than 345,000 retires using income drawdown to fund their retirement have failed to give a family member or friend legal authority to look after their affairs if they no longer have the capacity.
Just one in five people who have moved into drawdown since the pension reforms have registered an LPA, but the research by Zurich found that people with a financial adviser were almost four times more likely to have an LPA than those who hadn’t received advice (66% vs 17%).
This ‘financial planning blind spot’, could prevent a trusted person from immediately stepping in to manage the person’s affairs should they suddenly fall ill or lose mental capacity.
Without an LPA, even next of kin would need to apply through the courts to get access and control of a relative’s finances.
Zurich said the issue has developed since the dawn of pension freedoms in 2015 which mean people no longer need to buy an annuity at retirement. Instead, twice as many people are choosing drawdown over annuities, so the responsibility of managing income in retirement rests with them.
The insurer estimated that if the LPA gap continues to grow at the current pace, it could leave 1.7 million retirees at risk by 2025.
‘Ticking time bomb’
Alistair Wilson, savings expert at Zurich, said: “Registering an LPA has become even more important since the pension reforms. Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases. Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities. The time to set up an LPA is well before you need it, and pension providers should be highlighting this to their customers.
“With more and more people moving into drawdown, this is creating a ticking time bomb that could leave thousands of people facing a potential later-life financial crisis. It is vital that people plan for a time when managing their pension might become hard, or even impossible, and speaking to a financial adviser is one of the best ways to do this.”
According to the Alzheimer’s Society, there are currently 850,000 people in the UK living with dementia with the figure estimated to rise to over one million by 2025, and potentially double to two million by 2051.
How to set up a Lasting Power of Attorney
An LPA can give someone the authority to manage finances or make decisions relating to health and welfare.
As such, there are two different types of LPA – health and welfare and property and financial affairs – each requiring separate forms.
When you’ve completed an LPA, register it by sending it to the Office of the Public Guardian (for England and Wales), which can take up to 10 weeks. In most cases, it costs £82 to register each LPA. You can make changes to your LPA even if it’s been registered, or cancel it, as long as you still have mental capacity to make decisions.
Charges and processes are different for people living in Scotland and Northern Ireland.
Related: See YourMoney.com’s Applied for a Power of Attorney? 100,000s could have been overcharged for more information.