Older people who experience cognitive decline could see falls in their finances by as much as £30,000 after a decade, according to new research. Wealthier people are more likely to be affected, potentially due to the nature of their investments.
Wealthier households who experience a decline in their cognitive abilities – often referred to a later life ‘brain fog’ – see larger drops in their wealth in pounds and pence as well as percentage terms than poorer households, a study of the over 50s by independent think tank the Institute for Fiscal Studies (IFS) found.
Average cognitive scores, as measured by memory tests, remain relatively stable through individuals’ 50s and early-to-mid 60s but generally begin to fall steadily from the late 60s onwards, with even steeper falls for those in their 80s.
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For those who experience cognitive decline and those who do not, substantial gaps in wealth appear eight to 10 years later. By that point, people who have experienced cognitive decline have a level of net financial wealth that is roughly £30,000 less than similarly wealthy people who did not, the report found.
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However the decline in financial wealth is concentrated among the UK’s wealthiest – and is not explained by non-residential care costs or financial transfers, for example to children or grandchildren to avoid inheritance tax.
Managing risk assets with brain fog
One potential factor in driving the differences may be wealthier households’ greater exposure to complex or risky assets, like investment funds that invest in equities, the IFS report suggested.
Data from the US, which the IFS cited in its report, found those experiencing a severe decline in cognition while being unaware of it are more likely to experience declines in wealth than other groups, and these declines are concentrated among those who were initially wealthier and active on the stock market.
“This higher initial level of financial activity and decision-making may make wealthier people more exposed to making financial errors after experiencing cognitive decline,” the IFS report said.
However the fall in financial assets could also be due to wealthier households using up their wealth more rapidly following cognitive decline for ‘rational’ reasons, such as increasing spending when faced with the risk of a shorter retirement in good cognitive health, it added.
The findings of the report “suggest that there is potential for policy to do more to protect financial security in later life,” the IFS said – and flagged a bigger role for the guaranteed income from annuities.
“In the next few years, new regulations will require UK pension funds to provide a default retirement income product to their members. Default products that involve an annuity (income for life) being purchased with some of an individual’s pension wealth, potentially around age 75 or 80, could help make financial decisions in older age easier and protect those with cognitive decline from adverse financial outcomes,” the IFS said.
Other types of early planning – such as arranging power of attorney – could also help mitigate risks.
“As the effects of cognitive decline on financial wealth appear only slowly, there is a window of opportunity for policymakers, pension providers and individuals themselves to put these protections in place,” the report concluded.
Unprepared for ‘brain fog’
There is a real risk people are not prepared for dealing with cognitive decline at older ages, a 2025 study by Aviva and Age UK showed.
Among private pension holders aged 65 to 75, who weren’t receiving financial advice, nearly four in ten (39%) had either ‘never’ or ‘not really’ thought about the risk of cognitive decline on their finances.
“This lack of preparation suggests that many older people are at risk of adverse outcomes if they are faced with cognitive decline later on,” said the IFS.
Almost two thirds (64%) of mid-retirees said they had not spoken with family or friends about managing their financial affairs, should they become unable to do so independently, with 81% saying they don’t have a lasting power of attorney in place, the Aviva and Age UK study found.
The role of lasting power of attorney
A lasting power of attorney (LPA) is a legal document that allows you to appoint trusted individuals, called attorneys, to make decisions on your behalf if you are unable to.
It is for people aged 18 or over who have the mental capacity to create one and have the ability to make financial, property, and medical decisions for themselves.
In England and Wales there are two types of LPA, one for protecting an individuals’ health and welfare decisions and another which looks after their property and personal finances.
A health and welfare lasting power of attorney can only be used when you’re unable to make your own decisions. A property and financial affairs lasting power of attorney can be used as soon as it’s registered, with your permission.
It gives an attorney the power to make decisions about money and property for you, for example:
- managing a bank or building society account
- paying bills
- collecting benefits or a pension
- selling your home
Experts have said there are huge benefits to setting up a lasting power of attorney sooner rather than later. However it is important to fill out the paperwork correctly to avoid the LPA being rejected.
Philly Ponniah, wealth manager and financial coach at Philly Financial, said: "If you lose capacity without an LPA in place, your finances fall under the Court of Protection. Your family can’t simply step in. They have to apply to become a deputy, which takes months and costs far more than setting up an LPA early. In that time, bills can go unpaid and everyday admin gets frozen.”
The main risk to setting up an LPA is choosing the wrong person, she said – and not acting early enough.
“You need someone who’s financially steady and will always act in your best interests. The other risk is waiting too long. If your capacity is questioned, the whole thing becomes more complex. Setting it up early keeps you in control and avoids all the stress later."
