There’s one aspect of retirement that many of us overlook, when considering the costs we will need to meet with our pension savings.
That is the issue of healthcare, and it is an issue that has been brought into focus in the last few days, due to some new findings by the Citizens Advice Bureau (CAB).
The research from Citizens Advice indicates that 60 per cent of people who have taken money out of their retirement savings under the pension freedoms that came in last year have not factored the possible future cost of healthcare into their retirement planning.
The research, based on data from over 500 people who have accessed their pension since freedoms were introduced in April 2015, finds just 16 per cent have budgeted for care costs they may face as they grow older.
Care costs can include paying someone to help in the home, or moving into a residential or nursing home.
A further 23 per cent have given some thought to this and have a backup plan, such as equity release or selling their home.
Of those who don’t have a plan for paying for future care costs, Citizens Advice found that the possibility of healthcare has occurred to many, but the report reveals a range of opinions regarding how to deal with it.
Ten per cent of those surveyed said they would rely on others, such as family or the government.
Almost a third (29 per cent) said they have thought about future care costs, but have no plan about how to meet these.
And three in five (60 per cent) said they have not thought about how they’d pay for future care needs.
The research also found a considerable difference in the thinking of those still in work, compared to those who have retired.
Two thirds of people still in full-time work lack a plan to pay for healthcare, compared to just over half (56 per cent) of people who have already retired.
There are currently around four million older people, nearly half of those aged over 65 in England, with care needs.
Citizens Advice’s report acknowledges that planning for future costs is difficult, due to savers’ uncertainties over their future income, health, life expectancy, and, amid the ongoing debate over the future shape of pension saving, potential changes to government policy or the care market.
CAB also points out that the cost of care is also changeable, with research by Prestige Nursing + Care showing the annual cost of a care home increased by over £1,500 between 2015 and 2016.
Many people are also unsure how the funding system for care works.
CAB’s research also looked at the objectives of those who have already accessed their pensions.
Over one in five plan to spend their pension on luxury goods, while 16 per cent plan to use their pension to pay off debt. Some 18 per cent of respondents said they were accessing their pension to invest the money elsewhere.
Perhaps more alarmingly, there seems to be significant evidence that many respondents were taking action with their pensions, without first talking to a professional financial adviser.
Nearly one in ten respondents (9 per cent) said they had unforeseen issues with tax. Among those polled who took their pension pot in one go, 30 per cent were unaware of the rules governing this, and as a result were hit with what they termed ‘unexpected tax issues’.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005
