With 61 per cent of 55 to 65 year olds in the North unlikely to seek pension’s advice, wealth management experts, Brewin Dolphin, reveals that they could be losing five years of income.
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.
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 North:
Of those who knew the size of their pension pot the average size is over £132,000, below the national average of £163,000
47% expect their pension pot to last them more than 10 years
14% would still use their pension pots to pay off debts
Only 6% will invest their pension in gold, shares or bonds
49% will rely on money in an ISA or other savings for their monthly retirement
22% will rely on selling their home/down sizing
25% said they would put their pension in a savings/bank account
61% said they would be unlikely to seek financial advice on whether to withdraw a lump sum from their pension
Less than 1% in the North said they would invest it in a classic car like a Lamborghini
Over half are 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 Jo Jackson, Head of Financial Planning at Brewin Dolphin in Newcastle. “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, 61% of 55-65 year olds in the North 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 William Baker Baker, Head of Brewin Dolphin in Newcastle. “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 has developed a unique calculator, available at 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, 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.
What to do next
Square One Law, Brewin Dolphin and Deloitte have joined forces to offer advice on personal finance from a wealth management, legal and tax perspective.
For general enquiries about financial planning, please call on 0191 230 7060. This number will take you through to the Brewin Dolphin team who will pass on your query to the relevant expert.
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Any investment mentioned in this article is for illustrative purposes only and is not intended as investment advice. Any tax advantages mentioned are based on current legislation accurate at the date of print which is subject to change. The opinions expressed in this document are not the views held throughout Brewin Dolphin. No Director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents
Brewin Dolphin is one of the leading providers of wealth management services in the UK and we have been helping clients make their money work harder through economic ups and downs since 1762.
In an age of widespread digital communications, we still believe that getting to know you personally and understanding your aspirations is the key to success. We tailor investment portfolios to your needs and provide a full range of financial planning services to create a meaningful strategy that will meet your financial and lifestyle goals.
With a large office in Newcastle, we have an expert team of investment specialists and financial planners who can help you to develop a sound strategy for managing your financial affairs and safeguarding your long-term wealth.
Deloitte is a leading professional services firm, with an office in Newcastle, which provides audit, consulting, financial advisory, risk management, tax and related services. Its diverse North East client base ranges from owner-managed businesses to multinational corporations.
Square One Law is an entrepreneurial, commercial law firm, based in Newcastle upon Tyne. The firm offers a wide range of legal services including: banking, commercial, commercial property, corporate, employment, litigation and private client. In 2014 Square One Law was awarded Insider Dealmaker’s “NE Corporate Law Firm of the Year”.