About 1.7 million retirees could be at risk of a later life financial crisis by 2025 becuase 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 pension income drawdown are without power of attorney, meaning their families could be prevented from helping them manage their finances should they become too ill or incapacitated to do it themselves.
Setting up LPA means giving a family member or friend the legal authority to make decisions on an individuals 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 income drawdown since the pension freedoms, between December 2017 and January 2018.
It found more than 345,000 retirees using drawdown to fund their retirement have not set this facility up for themselves, equating to a potential 1.7 million over the next 10 years.
The outcomes could be drastic, with next-of-kin individuals 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 income drawdown over annuities, giving them the responsibility of managing their income in retirement.
A spokesman at Zurich commented: “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 a 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 income drawdown since the pension reforms were introduced, have registered an LPA.
However, it did find 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).
A spokesperson at The Alzheimer’s Society indicated the stigma around the LPA was compounded by its links to mental capacity, as individuals are generally 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.
Both types of LPAs are extremely important, as whilst it’s possible to get a deputyship after the event, it is impossible to manage a pension income drawdown strategy where the pension holder has lost capacity, without a LPA in place.