Car keys but no driving lessons – southern residents in danger of crashing retirement

With 55 per cent of 55 to 65 year olds in the South of England 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 over 2,000 adults 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 from the South of England:

Of those who knew the size of their pension pot the average size is over 176,000, above the national average of 163,000

51% expect their pension pot to last them more than 10 years

16% would still use their pension pots to pay off debts

Only 6% will invest their pension in gold, shares or bonds

45% will rely on money in an ISA or other savings for their monthly retirement income

24% will rely on selling their home/down sizing

24% said they would put their pension in a savings/bank account

55% said they would be unlikely to seek financial advice on whether to withdraw a lump sum from their pension

Over half 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.

“It’s a bleak picture,” said Tim Walker, Head of Brewin Dolphin in Exeter. “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, 50% of 55-65 year olds in the South of England 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 Tim Walker. “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 in the South of England.

Pension pots

Of those in the South of England who knew the size of their pension pot the average size is over 176,000

9% of 55-65 year olds think they will have no money in a pension pot when they retire

17% of 55-65 year olds think they will have less than 25,000 in a pension pot when they retire

25% of 55-65 year olds think they will have more than 100,000 in their pension pot when they retire, of which 5% expect to have a pension pot of over 500,000

26% of 55-56 year olds do not know how much money they will have in their total pension pot

Age of use

25% of 55-65 year olds in the South of England have already started using their pension pot

27% of 55-65 year olds in the South of England will start using their pension pots aged 55-59 years old

7% of 55-65 year olds in the South of England will wait until they are 70 to start using their pension pot

1% of 55-65 year olds in the South of England will wait until they are 80 to start using their pension pot

34% of 55-65 year olds in the South of England will start using their pension pot aged 65-69 years old

47% of 55-65 year olds in the South of England will start, or have already started, using their pension pot before they are 65 years old

Expected duration

13% of 55-65 year olds in the South of England expect their pension pot to last only 5 years into retirement

27% of 55-65 year olds in the South of England do not know how long their pension pot will last in retirement

51% of 55-65 year olds in the South of England expect their pension pot to last more than 10 years

Required retirement income

5% of 55-65 year olds in the South of England think they will need less than 500 a month to support their lifestyle expectations in retirement

21% of 55-65 year olds in the South of England think they will need between 1,001 – 1,500 a month to support their lifestyle expectations

31% of 55-65 year olds in the South of England think they will more than 1500 a month to support their lifestyle expectations

Other sources of retirement income

16 % of 55-65 year olds in the South of England said they will rely on income from stocks and shares for their monthly retirement income

9% of 55-65 year olds in the South of England said they will rely on income from buy to let property to support them in retirement, above the national average 6%

45% of 55-65 year olds in the South of England 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 in the South of England said they will rely on family support or inheritance to support them monthly in retirement

Intended use for pension pot

24% in the South of England will put it in a savings/ bank account

16% in the South of England believe they will still need to pay off debt

Only 6% in the South of England of 55-65 year olds would invest it in gold, shares or bonds

10% of 55-65 year olds in the South of England would invest in property

3% in the South of England will keep it as cash

12% of 55-65 year olds in the South of England 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, 1% in the South of England said they would invest it in a classic car like a Lamborghini