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.”