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Think-tank calls for pension freedoms ‘early warning system’


The Government should create an “early warning system” to prevent savers running out of cash in retirement, according to think-tank the Social Market Foundation.

In a report published today, the think-tank says the Government should closely monitor pension balances, consumer behaviour and the take-up of guidance and advice.

It says policymakers could then intervene for consumers deemed at risk of making poor decisions.

This could involve initiatives to make retirees think twice before making one-off decisions such as large withdrawals, and a financial health check midway through retirement.

The report analyses the retirement experience of the US and Australia – where very few retirees buy an annuity – and applies lessons to the UK.

It says on average, Australians preserve their pension wealth by consuming only 1 per cent each year. But a substantial minority of Australians consume their pension pots very quickly, with 25 per cent of individuals exhausting their pension pots by age 70 and 40 per cent by age 75.

Evidence from the US suggests that, on average, retirees draw on their pension savings relatively quickly, at a withdrawal rate of 8 per cent per year.

The Social Market Foundation says that following what it calls the “cautious Australian” model means retirees have lower incomes, and leads to subdued demand across the broader economy.

Social Market Foundation director of research Nigel Keohane says: “Pension freedoms may be new to the UK but such approaches have been well tried and tested elsewhere.

“Our research into the experiences of Australia and the US provides evidence on the range of long-term risks facing retirees and the state, whether that is exhausting a pension pot early, low standards of living in later life or taxpayers picking up the bill for more means-tested benefits.

“We need to introduce an early warning system to monitor retirement decisions, understand the long-term implications and ensure consumers receive the right support.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. When oh when will we stop pussy footing around this subject. Pension ‘Freedoms’ might well be fine for a very tiny minority. What we should do is to go back to the previous drawdown rule –where you had to have a minimum guaranteed income before you could trash the cash from your PP.

    Otherwise, you will see from today’s papers that research from the Social Market Foundation highlights the considerable risk of pensioners running out of money well before they peg it. They recon that those retiring at 65 will run out of money within 10 years. Current average life expectancy for a UK male is 78.5 and 82.4 for women. It therefore seems that we will have widows relying entirely on their State Pension (if they will get one) for about 7 years. So ladies prepare for 7 years in penury. However, on average a 65-year-old male today can expect to live another 18 years – so that means 8 years skint.

    Australia and the US – who pioneered this nonsense – pensioners are running out of cash and face destitution. In Australia Government policy is starting to turn full circle. They have now accepted recommendations that a good proportion of their funds should be invested in a default fund that would provide a guaranteed income for life – er, anyone heard of an annuity?

    Anyway in this modern world retiring to live on your pension at age 65 is just madness (and idleness – unless of course you were a heavy manual worker). Non-manual workers should retire at 70 (and the way legislation is going they soon will have to). This then (at current rates) will give you a fairly decent annuity (Joint life at least 6%) Compare this is the 8% being taken, with Adviser fee, platform fee and fund management fee on top and is it any wonder the money runs out?

    The right question should be asked: Would you like a guaranteed income for the rest of your life and the rest of your wife’s life? Without any messing about, fund managements meetings, concerns about markets and asset allocation all with associated annual charges. Or would you prefer to have your money at risk with the chance of getting a better income or with the same chance of a worse income, or indeed no income at all after a few years and all the while paying fees?

    No prizes for guessing the answer you would get.

    Don’t start wittering about inheritance. Pensions were never designed for this. If you want to leave something you should have other assets and of course you will probably have the house.
    For those with pots of £50k or less the Triviality rule should just have been increased.

    This ‘Freedom’ stuff is all a con. It is a con by the providers, managers and advisers to keep their income streams. It is a con by the Government to accelerate the tax take and encourage those in Public Sector pensions to leave so that they too can access ‘Freedom’.

    All so redolent of the ‘Freedom’ on offer for contracting out.

  2. I thought the Government “trusted people with their pension pots”?
    With freedoms of this type comes great responsibility you can’t have one without the other

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