Wednesday, 30 December 2015

US and Australia pension freedoms: potential risks for the UK retirees

Australia and the US are offering retirees various choices on how to access their pensions, but will their approach work for the UK is questionable. With the reforms in the UK pensions coming next April there are few things to look out for and learn in order to avoid risks.

According to the State Market Foundation report, the average American has spent the entire pension pot after just 17 years into their retirement, while about 25 percent Australians spend their pension by age 70, and about 40 percent by age 75. This creates potential risks for such groups as women (due to the average life expectancy) and non-homeowners.
Both the US and Australia have their own categories of retirees, those who spend quickly and ‘cautious savers’. Australian government recently tried to set a preselected default option for ‘quick spenders’ to ensure they have a stable income stream.

What should the UK expect if it follows the US and Australian example (for pension freedoms)? There are considerable risks in the long-term which both individuals and the British state can be exposed to with the new reforms. Reduced living standards and well-being is just the beginning. There is also increased risk of poverty and smaller pensions for people in retirement.

The reforms will be new to the UK, but this approach has been tried in other countries. Giving that the foundation report compares the UK regime to Australia, the US, Canada, Switzerland and Denmark, there should be a warning system to monitor retirement decisions in order to avoid risks and ensure consumers get the right support.

If you are wondering how to go about planning annual income in retirement (against your likely total available capital), you are welcome to give us a call at Just Service HK.

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