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Many retirees could wipe out pension pots in 10 years, leaving the state to pick up the bill, a report warns.

Freedoms introduced in April allow over-55s to spend pensions funds as they like rather than forcing them to take out an annuity.

Social Market Foundation found that, if pensioners retiring at 65 spend pots as Australians have, four in 10 will exhaust the fund by the age of 75.

If they follow US habits, pots will last to 82.

Nigel Keohane, one of the report authors, said: “Our research provides evidence of long-term risks facing both retirees and the state.”

While many retirees' pension pots would last for the duration of their retired lives, the Government could still face huge bills for those who fall short, the SMF warned.

It provided the example of a man retiring at 65 with a pension pot of £185,000, who then exhausted it after 10 years.

By the time he reached the point of average life expectancy, he would have cost the state £10,000 more than if he had bought an annuity.

British retirees would of course be able to fall back on the state pension, but the SMF warned this might not be enough to keep them out of financial difficulty.

Keohane said the findings highlighted the need for an early warning system in the UK to avoid high numbers of pensioners making the wrong decisions and running out of cash.

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He added: "Pension freedom may be new to the UK, but such approaches have been well tried and tested elsewhere.

"Our research provides evidence of long-term risks facing both retirees and the state, whether that is exhausting a pension pot early, a low standard of living later in life, or taxpayers picking up the bill for more means-tested benefits.

"If we really want to know how pension freedom is progressing and avoid such detrimental consequences, we need to introduce an early warning system to monitor retirement decisions, understand the long-term implications and ensure consumers receive the right support."