Pension dippers fail to plan for care costs: Just one in six who has taken money out have budgeted for the future

  • One in six has budgeted for care costs,  Citizens Advice study found
  • Survey found one in ten hope to rely on family or the government
  • Citizens Advice said local authorities should offer advice services to help people plan for the future

More than half of people who have taken money out under pension freedoms have not planned for future care costs, a study shows.

A survey of 500 people who have accessed their pension since April of last year revealed that just one in six has budgeted for the cost of care as they grow older.

Citizens Advice said its research found that three out of five have not considered how they will pay care costs, with one in ten hoping to rely on family or the government.

More than half of people who have taken money out under pension freedoms have not planned for future care costs, a study shows (file picture)

More than half of people who have taken money out under pension freedoms have not planned for future care costs, a study shows (file picture)

It said local authorities should offer advice services to help people plan for the future.

The research found that those without a plan for care costs are more likely to remain in work while withdrawing from their pension.

Gillian Guy, chief executive of Citizens Advice, said: 'Care costs can be a heavy financial burden that many people are unprepared for. 

'It is unsurprising that people in their fifties are not thinking about how they will pay for care costs when the need for this could be 10, 20 or even 30 years away.

'But this issue does need some attention, otherwise people risk dipping into their pension now only to find they need some of the money later.

'Getting the right guidance is key. There is an opportunity for local authorities to help people plan ahead by providing clear information about how funding for care works.' 

Pension freedoms allow those over the age of 55 to spend portions or the whole amount of their pension as a lump sum.

A survey of 500 people who have accessed their pension since April of last year revealed that just one in six has budgeted for the cost of care as they grow older (file picture)

A survey of 500 people who have accessed their pension since April of last year revealed that just one in six has budgeted for the cost of care as they grow older (file picture)

If taking the whole sum, no tax is paid on the first 25 per cent and the rest is taxed as if it were a salary at their income tax rate.

The changes allow people to choose what they do with their pension when they reach 55.

Instead of being effectively forced to buy an annuity - which pay a guaranteed but often meagre income - savers can use their pension like a cash machine.

Campaigners and politicians have raised concerns that some people would blow all their retirement savings. 

Currently around 4million older people, nearly half of those aged over 65 in England, have care needs.

Care costs can include paying someone to help in the home or moving into a residential or nursing home.

Shadow Work and Pensions Secretary Debbie Abrahams said that since introducing freedoms, the Government had failed to offer proper advice.

'There is a real risk their complacency will lead to our next pension crisis when people who have taken too much out of their pension pot, or have been subjected to multiple hidden charges, find themselves short of money and unable to afford the care they need in their retirement,' she said.

But a Treasury spokesperson said it was only right that people have real freedom and choice over how they access their savings.

'Our pension freedoms are proving to be a great success,' she added.

'To help people make informed decisions, including on the costs of care in retirement, the Government set up the free and impartial Pension Wise guidance service which over 2.8 million people have accessed since April 2015.' 

 

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