Why you need a lasting power of attorney
You still need to manage your money after you choose to retire. In particular, drawdown, unlike an annuity, requires you to manage the plan, review it regularly, and maybe change how you take it to avoid spending your savings too quickly. You would need to do this throughout your retirement.
However, as you get older you are unfortunately more likely to suffer physical or mental disability that could impact your ability to manage your own financial affairs. Losing mental capacity during retirement could mean that you may no longer be able to take those decisions yourself. You may need your partner or someone else to help or make decisions on your behalf.
As you age, the risk of developing dementia doubles roughly every five years. And, it’s estimated that dementia affects one in six people over the age of 80. Some 850,000 people in the UK have dementia, and the Alzheimer’s Society forecast this will rise to more than one million by 2025.
Equally, some serious physical illnesses such as cancer, strokes, or an accident, might mean that you may be unable to look after your money.
If you developed a serious illness or were involved in an accident and lost mental capacity, not even your spouse would be able to make vital decisions about your affairs. For example, if you had a drawdown pension, they wouldn’t be able to access your pension or money in investments – which could create difficulties in an already stressful period.
You should set up a lasting power of attorney in case you become too ill to run your own finances.
Lasting power of attorney (LPA)
An LPA is a legal document to let you (called the donor) choose others (known as attorneys) to help you make or take decisions on your behalf about your health, welfare, finances and property if you no longer have the capacity to do it yourself.
You should appoint someone you trust, such as a family member, friend, or solicitor who would then take over if you can no longer make decisions. Anyone you choose should be capable of making that decision themselves, which you may want to consider if they are a similar age to you already.
How to set up an LPA
There are two types of LPA, one for managing your health and welfare, and one for managing your financial affairs.
You can set up either type of LPA yourself, and after filling in the forms, the only costs to you will be the court application fee. Visit the Government's Office of the Public Guardian for a guide on LPA, including how the system is different in Scotland.
A solicitor can also set up an LPA for you. They will charge a fee in addition to the court application fee.
You should consider seeking legal advice as these forms can be complex to complete.
Many people still don’t set up an LPA, despite the benefit of having one set up before you fall ill or lose capacity in some way. If you don’t set one up, your loved ones may have to call on the Courts and undergo a potentially lengthy and expensive process to obtain control of your finances.