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Do you need a financial MOT?

Do you need a financial MOT?

Category: Pensions

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The headlines are full of the praises of auto-enrolment at the moment, but what about those that are approaching retirement and haven't built up a decent sized pension pot?

Given that retirement routinely lasts between 30 and 40 years, and many older people are completely unprepared for this stage of their lives, Age UK are calling for regular financial MOTs – "road checks" – for pensioners and people approaching retirement.

Research by the charity has shown that two-thirds of people in the UK do not take professional financial advice and 20% of people aged between 50 and 64 show very low readiness for ageing in terms of financial resources and health.

In fact, 20% of men and 40% of women have no private pension at all, while 50% of women have a private pension worth less than £22,000, equivalent to just £1,300 a year.

Even if people do have some pension provisions in place, a lot of them are based around a "single plan" assuming their lives are going to follow one particular path. But what happens if someone falls ill, care support is needed, a couple divorce or if there is a death of a partner? These kinds of things can derail any financial plans people have overnight.

This is why the report by Age UK, involving industry leaders, Government, consumer advocates and older people, is highlighting the need to carry out periodical financial reviews and guidance to ensure people can survive whatever life throws at them. This different approach steers away from the single life plan but instead builds financial resilience overall.

Tom Wright, Age UK group chief executive and co-chair of the Financial Services Commission, said: "With retirement now often lasting 30 or 40 years – a third of your life - we're in critical need of a radical new approach to making later life financially secure and comfortable.The concept of making one set of retirement plans at pension age is not fit for purpose.

"We believe a series of financial MOTs at significant points throughout retirement, together with a robust state and private pensions system, is the real way to help people make ends meet and live comfortably. We hope the financial services industry, regulators and Government who worked with us during the Commission will now act on the blueprint we've laid out as a result of our discussions so that people in Britain can feel financially prepared for and confident about their later lives."

The report is also calling for more honesty and transparency in financial products, particularly around investment returns, so people can make decisions on what is right for them based on facts, and hopefully build up more trust and faith in financial institutions. The changes brought about by this year's budget announcement could also open up the market to a risk of scams and bogus investment schemes, and this is something that needs to be addressed.

Getting the best impartial advice and choosing the right products for your needs – as well as building in flexibility to allow for changes in your circumstance – is the key to getting the most out of your retirement. Everyone has dreams about what their perfect retirement would be like, and you may need to be a little more realistic about what you will actually be able to afford, but if you get the right plans in place there is no reason why you can't live a long and happy later life.

What next?

Consider all your saving options including tax-free ISAs

Read our retirement guides

Don't discount annuities, they are still a good option for many

Find out more about equity release if you own a property

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.