About 1.7 million retirees could be at risk of a later life financial crisis by 2025 because they have not set up a lasting power of attorney (LPA), a provider has warned.
According to Zurich, four in five retirees (79 per cent) in drawdown are without power of attorney, meaning their families could be prevented from helping them manage their finances should they become too ill to do it themselves.
Setting up LPA means giving a family member or friend the legal authority to make decisions on one’s behalf at the loss of a person’s own ability, for instance when they lose mental capacity.
Zurich interviewed 742 people who have moved into drawdown since the pension freedoms, between December 2017 and January 2018.
It found more than 345,000 retirees using income drawdown to fund their retirement have not set this facility up for themselves, equating to a potential 1.7 million over 10 years.
This means even next-of-kin would be forced to apply to the courts to take charge of a relative’s finances should they fall ill.
Zurich said the problem was exacerbated by the pension freedoms, which meant twice as many people are now choosing drawdown over annuities, giving them the responsibility of managing their income in retirement.
Alistair Wilson, a savings expert at Zurich, said: “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.”
According to the Alzheimer’s Society, there are 850,000 people currently living with dementia in the UK .
This could increase to one million by 2025, and potentially double to two million by 2051.
Despite this, Zurich found a mere one in five (21 per cent) people who have moved into drawdown since the pension reforms have registered an LPA.
However, it found that people with a financial adviser were almost four times more likely to have an LPA than those who had not sought advice (66 per cent vs 17 per cent).
Harriet Hill, programme partnerships officer at Alzheimer’s Society, said the stigma around the LPA was compounded by its links to mental capacity as people were reluctant to consider a future where they may not be able to make their own decisions.
But she said: “In cases where LPAs are not in place, assets and equity may be lost, or those in a vulnerable position may be forced to make decisions they are no longer able to make.
“We need to get to the stage where a LPA is taken out as a standard practice, with financial services advising people to do this as early as possible.”
There are two types of LPA, one covering health and welfare and the other covering property and financial affairs.
Alistair Cunningham, financial planning director at Wingate Financial Planning, said: "Both types of LPAs are very important, as whilst it's possible to get a deputyship after the event, it is impossible to manage a drawdown strategy where the pension holder has lost capacity without.
"We recommend, and remind, individuals to do financial LPAs, which are effectively an insurance."
carmen.reichman@ft.com
