40% of pensioners ‘to run out of money by age 75’

40% of pensioners ‘to run out of money by age 75’

Forty per cent of pensioners will have used up their pension pots by the age of 75, and will face poverty in the last 10 years of their lives, an analysis of pension freedoms has found.

The 96-page Social Market Foundation report, Golden Years? What Freedom and Choice Will Mean for UK Pensioners, compared what Australian and US pensioners did with their pensions and found that 25 per cent of Australian pensioners exhausted their pots by age 70, and 40 per cent had run out of cash aged 75.

In the US, pensioners were depleting their wealth by 8 per cent of their pension pot each year, meaning the typical pensioner would run out of cash 17 years into retirement.

As a result, the authors of the report have called on the UK government to learn from this and develop an early system to identify emerging risks to consumer and taxpayers.

Nigel Keohane, one of the report’s authors and SMF’s director of research, said: “Our research into the real-life experiences in Australia and the US provides evidence on the range of long-term risks facing pensioners and the state, whether that is exhausting a pension pot early, a low standard of living in later life, or taxpayers picking up the bill for more means-tested benefits.

“If we really want to know how pension freedom is progressing and avoid such detrimental consequences, we need to introduce an early-warning system to monitor retirement decisions, understand the long-term implictions and ensure consumers receive the right support.”

Adviser view

Robert Reid, director at London-based Syndaxi Financial Planning, said: “In the US one of the biggest things that eats into people’s savings is private medical cover. That’s a bigger contributor to savings being used up. In the US they are talking about sustainable withdrawals. Medical cover wipes them out and one claim is $800,000 (£510,000).

“However, if the government did implement a risk monitor to tell people they are running out of money, how are you going to fix it? All you’re doing is delivering bad news. This all comes back to a fundamental need for individuals to examine what they were doing, understand how things such as decumulation work, and make sustainable withdrawals.”