One in 10 older people take handouts from their family and friends to get by, finds LV= study
- People due to retire within the next decade are in even worse straits
- Find out what kind of retiree you will be using the categories below
It's not just younger people who need handouts from relatives. One in 10 retirees lean on family and friends for financial help, new research suggests.
People due to retire within the next decade are apparently in even worse straits, as nearly one in three are already turning to loved ones for assistance.
A large majority in both groups of over-50s also admit they turn to people close to them for money help rather than professional advisers, according to the annual 'State of Retirement' study from financial services group LV=.
Money worries: One in 10 retirees lean on family and friends for financial help, new research reveals
LV= reckons that some 1.2million or 11 per cent of retirees could be depending regularly, from time to time or on occasion on financial help from family and friends. This is based on an estimate from the Pensions Policy Institute that there are currently 12.3million people at retirement age or older in the UK.
Its research among 1,500 people in March and May this year also found that some 27 per cent of people within 10 years of retirement are in this predicament.
Much of the research about families doling out financial help focuses on older people coming to the aid of younger generations, but the LV= report indicates that money is flowing in the other direction too.
But this is only in a minority of cases, with the study suggesting the vast majority of retirees are well off enough to be financially independent in old age.
The LV= report split retirees into broad groups based on their financial circumstances - from those reliant on others as described above, to 'grey collar workers' who still have a job, and 'pension investors' who are drawing an income from money invested in stocks and other financial assets.
Which retiree group do you fall into?
LV= put retirees into nine categories to expand on previous studies by the Financial Conduct Authority which identified just two main groups, the well-off or 'retired with resources' and those who are struggling or 'retired on a budget'.
Some people belonged in more than one category, so the groups overlap.
1) Property Pensioners: 22 per cent of retirees
'These retirees rely on some value from their property when they retire – primarily through downsizing, relocating or equity release,' says LV=.
'For some this is their primary asset at retirement, and for many it is a natural part of retirement planning – cashing in on unused space by downsizing or using freedom from work to move to a more affordable area.'
2) Grey-collar Workers: 8 per cent of retirees
'This segment describes a significant minority of people who choose to carry on working after typical retirement age either through choice or necessity.
'The good news is that for most this is a choice, with the majority (87 per cent) of those working at retirement age doing so because they want to. Only one in 10 Grey-collar Workers feel obliged to work.'
3) Reliant on Others: 11 per cent of retirees
'This group describes those requiring assistance from friends or family either financially and/or for advice. This is one of the more extreme segments, showing a significant minority of people are not prepared for retirement.'
4) Falling Short: 24 per cent of retirees
'These retirees worry that their savings and/or pension will not last their full retirement or allow them to have a comfortable lifestyle in their later years.
'When looking at those within 10 years of retirement, 55 per cent are worried about money, suggesting that the next generation of pensioners are more likely to "fall short".'
5) Pension Investors: 9 per cent of retirees
'This segment uses pension resources to re-invest – and effectively treat this investment role as a part-time job. Having left work, they use some of their new free time to make active decisions about their money and continue to grow their reserves.'
6) Defined and Refined: 24 per cent of retirees
'These people are retired on a healthy defined benefit pension, which provides a fixed income for life, often increasing with inflation and which can be passed onto a spouse after death.
'Many of the nation’s baby-boomers held jobs with attractive – often final salary – pension schemes, allowing them to realise a very good standard of living in retirement.
'These Defined and Refined are living in a period described by some as the golden age of pensions, yet with people living for longer than expected such schemes have proven expensive and as a result have become increasingly rare.'
'Fewer people approaching retirement (20 per cent) can look forward to such healthy pensions.'
7) State Pensioners: 43 per cent of retirees
'This is the most common of our states of retirement, where the state pension is providing the majority of retirement income, often supplemented by personal pensions.
'While many are comfortable, this segment is also the most likely to worry about having enough money in their retirement years or look to other sources, such as part-time work.
'Of those approaching retirement, around 37 per cent will rely primarily on the state pension possibly due to an increase in people saving privately for their pension and auto-enrolment.'
8) Overwhelmed: 19 per cent of retirees
'This group is approaching or at retirement and is confused by the raft of options available to them. This is undoubtedly influenced by the range of choices opened up by the recent pension freedoms, and the end of the "default retirement age" which means that retirement is no longer a fixed date when people end work and start to collect their pension.
'In fact, more people now describe themselves as overwhelmed than fully in control when it comes to retirement planning.'
9) Second Homeowners: 7 per cent of retirees.
'In contrast to Reliant on Others, this group of pensioners have second properties either as an investment or means of income, leaving them able to live comfortably in retirement.'
'While a greater proportion (13 per cent) of those approaching retirement have, or plan to have, a second property, for many this is an aspiration and the new higher stamp duty charges for second homes may put others off.'
How many retirees get financial advice?
LV= found 25 per cent of over-50s have taken or plan to get financial advice, even though some 45 per cent approaching retirement believe the pension freedom reforms are too difficult to understand without professional help.
Its findings are in line with other research suggesting many people are loath to seek professional money help, with half of over-55s stating they were unwilling to do so in a survey by comparison website money.co.uk last year. In that case, only one in five over-55s said they would pay for advice and 32 per cent didn't know.
It is compulsory for retirees to get financial advice in some circumstances. To prevent people unwittingly giving up valuable pension benefits, the Government has legislated to ensure savers pay for help if they want to:
WHAT IS PENSION FREEDOM?
Pension freedom reforms have given over-55s greater power over how they spend, save or invest their retirement pots.
Key changes from April 2015 included removing the need to buy an annuity to provide income until you die, giving access to invest-and-drawdown schemes previously restricted to wealthier savers, and the axing of a 55 per cent 'death tax' on pension pots left invested.
They don't apply to those with more generous gold-plated final salary or 'defined benefit' pensions which provide a guaranteed income after retirement.
1) Access a defined contribution pot with valuable guarantees - like death benefits or an annuity rate better than those available on the open market - worth £30,000-plus
2) Transfer or cash in a final salary pension pot worth £30,000-plus.
John Perks, managing director of Retirement Solutions at LV=, said: 'A significant minority of pensioners rely on loved ones to help them financially during retirement and those approaching retirement seem to be in an even worse situation.
'Yet equally worrying is that people are also far more likely to take financial advice about retirement from friends than from a professional.
'Given the increasingly complex choices consumers have to face about their pensions, and with the economic impact of leaving the European Union still unknown, we believe it’s never been more important consumers have access to professional advice at retirement.'
Should you consider paying for financial help?
Patrick Connolly, certified financial planner at money specialist Chase de Vere, has offered five reasons why people should pay for help and the risks attached to rejecting the option. He stresses: 'The decisions you make with your pensions are too important to get wrong.'
1) You need to plan ahead before you take pension benefits.
'If you are planning to buy an annuity then you need to be reducing investment risk as your planned retirement date approaches, because if you take too much risk you won’t have the time to claw back any losses.
'If you’re planning to go into drawdown then it’s important to get the right balance between capital growth and capital protection.'
2) You have to ensure you have enough secure income to cover basic living costs.
Connolly describes the risks of not using an independent financial adviser as follows: 'You don’t believe that a lifetime annuity is good value and so select a riskier option in the hope of securing a better return. However, you are now putting your future standard of living at risk.
'You buy an annuity but don’t shop around for the best deal and don’t consider enhanced annuities. This means that you miss out on achieving a higher level of annuity income.'
3) You might take too much risk in an income drawdown portfolio.
Connolly says: 'You take too much risk, your investments perform badly and your pension fund is depleted. This means you either have to reduce the amount of income you’re taking or you could run out of money.
'You’ve used one of the online drawdown calculators which are available from companies trying to sell you drawdown products. However, these assume that your investments will go up in value each year, which isn’t realistic. You’ve therefore gone into drawdown based on misleading information and are taking more risk than you realise.'
4) You don't take enough risk with investments.
'You invest mostly in low risk assets and over time your drawdown fund is depleted as you withdraw income and suffer lacklustre investment growth,' says Connolly.
'The investment performance of your drawdown fund struggles to out-perform inflation, which could itself rise as sterling loses value following the EU referendum result, meaning you could be losing money in real terms.
'You live for much longer than you expected, but as your drawdown fund hasn’t performed well you risk running out of money in your later years or you have to significantly reduce the level of income you are living on.'
5) You need to review your finances regularly
'An independent financial adviser is best placed to determine whether your current income arrangements are sustainable or even whether you could quite comfortably increase the level of income you are taking,' says Connolly.
This is Money explored the topic of whether retirees should get financial advice in our new guide to investing your pension.