Older people who experience cognitive decline face "sizeable and lasting" reductions in their financial wealth, according to new research from the Institute for Fiscal Studies (IFS), which has urged policymakers and providers to strengthen support for retirees.

The study, based on 20 years of data from the English Longitudinal Study of Ageing, found that while memory and cognitive scores remain relatively stable through people’s 50s and early 60s, they begin to fall steadily from the late 60s, with sharp drops from the mid-70s onwards.

By their late 80s, more than 40 per cent of older adults record what the IFS defines as “low cognitive function” – scoring below seven out of 20 on a memory test, compared with an average score of 11.

The financial implications of this decline were significant.

Eight to 10 years after first experiencing low cognitive function, individuals had around £30,000 less in net financial wealth than similarly aged people whose cognition did not deteriorate.

Indeed, the report stressed that wealth trajectories are comparable at the point cognitive decline begins but diverge markedly over the following decade.

Wealthier households saw the most significant declines, both in cash terms and as a proportion of their assets.

The IFS suggested this may reflect greater exposure to complex or risky holdings among those at the top of the wealth distribution, though it could not rule out that faster drawdown may also be a deliberate response to worsening cognition.

The study also found little evidence that formal care costs or increased financial transfers explained the drop in wealth; similar patterns were observed among those who never received formal care, and household transfers tended to fall after cognitive decline rather than rise.

The findings come at a time when a growing share of retirees rely on defined contribution (DC) pension pots and must make ongoing financial decisions well into older age, rather than benefiting from guaranteed lifetime incomes under defined benefit (DB) schemes.

The IFS warned that this shift "raises the stakes" of cognitive decline for financial wellbeing in later life.

Commenting on the research, IFS senior research economist and author of the report, Heidi Karjalainen, said: “Making financial decisions in retirement is increasingly complicated, with more people relying on pension pots that do not automatically provide an income for life.

"Faced with cognitive decline and complex finances, many are likely to find it difficult to manage their finances.

"The good news is that, although people facing cognitive decline generally see declines in their financial wealth, these effects tend to emerge slowly," suggested Karjalainen.

"This should give individuals, families, pension providers and policymakers a window to put plans in place to protect the finances of older people,” she added.

With new regulations set to require pension schemes to offer a default retirement income product, the IFS argued that annuitising part of a pension pot at around age 75 or 80 could help protect retirees from making poor decisions at ages when cognitive decline becomes more common.

It also highlighted the importance of planning, including powers of attorney,
structured support from providers, and greater awareness of the risks among retirees and families.

The report concluded that while cognitive decline was a natural part of ageing, the financial risks it presents are not inevitable, provided appropriate safeguards are in place before decision-making ability deteriorates.

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