A report by Zurich shows that thousands of people who manage their retirement savings risk facing a financial crisis in the future.
The insurance group has warned that four in five retired people who are using a drawdown scheme to manage their pension fund have not set up a Lasting Power of Attorney (LPA).
LPAs are legal documents that allow you to appoint one or more people, known as Attorneys, to make certain decisions on your behalf. There are two types of LPA, one for property and financial affairs and another covering personal health and welfare.
The issue highlighted by Zurich’s report, in part stems from when in 2015 the Government scrapped rules requiring people to buy an annuity at retirement.
Now those retiring can choose a drawdown scheme which gives them the responsibility of managing their own income when they retire, rather than automatically receiving a set amount each month.
The concern is that if you do not set up a LPA, your next of kin or if you prefer, close friends, will not be able to take charge of your finances should you be incapacitated later in life with illnesses such as dementia.
They would not be able to manage your pension, access your bank account to pay bills or allocate money for your care without applying to the Court of Protection, which can be a long and costly process.
Zurich believes this is a growing problem and estimates that by 2025 1.7 million people could be at risk of a financial crisis in later life.
This figure chimes with those from the Alzheimer’s Society which says around around 850,000 people are currently living with dementia in the UK. They believe this could increase to one million by 2025, and potentially double to two million by 2051.
The time to set up a LPA is well before you need it and all reputable pension providers and Independent Financial Advisors (IFAs) should be emphasising this to their clients.
Often people make a LPA not because they expect to lose their mental capacity but because they would prefer someone close to them to take care of their finances or medical decisions on their behalf should the need arise.
By setting up a LPA you will be protecting yourself and the management of your finances if the worst should happen to you.
To find out more about our Wills and Probate services visit www.phillips-law.co.uk/wills-probate