Average UK pensions savings will not be enough to adequately solve the issue of long-term care funding, Andrew Tully, pensions technical director at MGM Advantage, said.
Speaking yesterday (5 October) at a Liberal Democrat conference fringe event, Mr Tully conceded the pension reforms will help people manage their pension savings in a way that best suits their needs, but warned given the average size of pension savings in the UK, “this is not a silver bullet to solve the care funding issue”.
“It may be unpopular to suggest this, and certainly it isn’t possible for everyone, but in general terms we need more people to save more for their retirement, and more people will need to keep working longer.”
Mr Tully noted from next April people at retirement will be able to withdraw a lump sum to help pay for care costs, while annuities will be more flexible to possibly pay if someone enters a registered care home.
“However with more flexibility comes greater risk. Allowing people to withdraw funds as and when they wish may mean some people run out of income during their lifetime, and do not have sufficient funds left in later life to pay for care.”
He also pointed out that people have to be realistic about the size of pension pots of those reaching retirement.
He said: “The average pension pot is around £47,000 before any tax-free cash sum is taken, and given an average 65 year old is likely to live until age 89, that will struggle to provide a decent level of income over that period, let alone have a lump sum available to pay for care costs; especially when you consider the cost of care.”
peter.walker@ft.com
