Zurich, which commissioned the research, said that without the “vital legal document, families could be locked out of a loved one’s finances should they become too ill to manage their affairs, leaving them facing a lengthy court process before they can step-in to help.”
The call came for more people to act, as more than 1.7m retirees could be affected by 2025, says Zurich, at a time when the Alzheimer’s Society estimates more than a million Britons will be living with dementia.
The lack of preparedness unearthed by research, which was carried out by YouGov on a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced, could spark a “later life financial crisis” the firm says.
It could prevent an individual trusted by the retiree from immediately stepping in to help them manage their affairs should they suddenly fall ill or lose mental capacity.
Without an LPA in place, even next-of-kin would be forced to apply to the courts to take charge of a relative’s finances.
Zurich believed the findings highlighted the scale of an issue which has emerged since the Government scrapped rules compelling people to buy an annuity at retirement.
Twice as many people are now choosing drawdown over annuities, giving them the responsibility of managing their income in retirement.
Alistair Wilson, a savings expert at Zurich, said: “Registering an LPA has become even more important since the pension reforms.
“Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases.
Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities.
“The time to set up an LPA is well before you need it and pension providers should be highlighting this to their customers.
“With more and more people moving into drawdown, this is creating a ticking time bomb that could leave thousands of people facing a potential later-life financial crisis.”
Harriet Hill, of the Alzheimer’s Society, said: “We need to get to the stage where a LPA is taken out as a standard practice, with financial services advising people to do this as early as possible.”