A generation sleepwalking into retirement poverty: Bombshell survey reveals hundreds of thousands expect to see their pensions run dry because so few are planning for old age.

Older savers are clueless about their pensions and most will run out of money in retirement, damning research reveals.

An exhaustive study from the pension industry found savers were too scared to check their pots, and underestimated how long they will live warning that the nation is now sleepwalking into retirement — nearly six years after the pension freedoms were introduced.

Its report lays bare the ‘binary’ choice pensioners currently have between costly financial advice — or going it alone.

The research, which has involved in-depth interviews with sample groups of savers since 2015, says those nearing retirement need more help to get it right. It found:

• Three in four savers are on track to run their pension dry in retirement.
• Savers are put off planning for the future as they fear the ‘truth’ — with just one in ten making detailed money plans.
• Just one in 20 considered how inflation will eat away at their savings.
• No savers thought they’d live to 100 and beyond — despite statistics suggesting one in ten 65-year-olds will do so. The pension freedoms of 2015 gave savers the choice to do what they wanted with their pots from the age of 55. Previously, they would almost always have had to use their pots to buy an annuity — providing them with a guaranteed income for the rest of their lives.

Now, most retirees choose to keep their pension money invested and draw down an income — perhaps after taking a 25 per cent tax-free lump sum.

Since the freedoms were introduced in April 2015, nearly one million pensions have entered drawdown. It allows savers to keep their pension invested and take an income from it — experts recommend no more than 4 per cent a year.

However, if it is not invested efficiently or too much is taken out, the saver could quickly deplete their pot.

Yet the report says most are likely to make ill-informed investment choices and take money out too quickly — meaning most will be solely reliant on the state pension by their mid-80s.

It also warns that not nearly enough savers were clued up about how they should best invest and access their retirement money.

The behavioural research says savers can only choose between making decisions themselves or paying for ongoing financial advice.

The authors said most were going it alone, and ‘doing the best they can, given the impossible task’.

Yet the report found their choices often appeared ‘illogical and irrational’, adding: ‘Members going it alone are riddled with behavioural biases that prevent them from thinking about their later years, they struggle with numbers, they have no knowledge of investments, and consistently misunderstand or are ignorant of the risks they face. This situation is far from ideal.’

The report ‘fills a big gap in our understanding of how pension freedoms are working in practice.

A significant number of people are sleepwalking into retirement and will have a worse quality of life in later years than could have been the case if they had been guided.

‘People would be dismayed to arrive at a car dealer’s forecourt to buy a car, be presented with a selection of parts and told to a pick a selection and build their own vehicle — so why do we expect pension customers to do exactly this?’

The research also revealed that those facing retirement want their pension provider to direct them down the best path. It comes as regulator the Financial Conduct Authority has warned that too many pension savers are keeping their money in cash rather than invested in the stockmarket — losing retirement income as a result.

Former pensions minister Baroness (Ros) Altmann says: ‘Pensions are the last money people should spend.

They are the most precious of all investments. Spend your ISA, downsize your house, use your other investments before you draw on your pension fund. These are simple messages that have simply not been passed on to the public. It is quite astonishing really.’

Putting off checking your pension can also mean missing out on an earlier retirement. Jerry Wood, who was one of the 50 savers who took part in the study last year, was 55 before he even thought to check his pension.

However, after having a look, Jerry, 57, realised he could actually retire early from his job as a sales manager. The married father-of-one, from Leeds, stopped working in April last year — taking a lump sum — and he now intends to draw down the rest. He says: ‘I knew the basics about pensions but it was only when I looked at the finer details, I thought, ‘I can do this.

How Markland Hill Wealth can help

Contact Markland Hill Wealth for an independent free review of your later life planning. We will carry out a thorough review of your current arrangements including any personal pension plans, employers’ schemes, auto-enrolment pension and your State Pension entitlements.

We’ll research the whole of the market to find a product that reflects your current financial circumstances and lifestyle.

Get in touch with the team through www.marklandhill.com with the subject ‘Later Life Review’ and we will contact you to help guide you through your financial future.

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