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Retirees anything but reckless with pension pots

Written by: Paloma Kubiak
Fears pensioners would go on spending sprees following the introduction of pension freedoms have been allayed as retirees show they're cautious with their money.

Just one in 10 retirees admit to overspending in retirement, while 79% said they have used pension lump sum withdrawals wisely.

A quarter said they had used pension money to pay off all their debts, while 16% helped their children with a deposit for a home. A further 8% said they had helped their children or grandchildren with education costs, according to the research by Prudential.

Pension freedoms, introduced in April 2015, allow savers aged 55+ unfettered access to their pension pots, with the first 25% being tax-free.

Critics warned we could see pensioners splash out on Lamborghinis, but three years into the freedoms, pensioners are still approaching with caution. However, 6% said they initially withdrew more than the 25% tax free lump sum from their funds.

Further, a quarter of the 1,000+ people polled said they have found it tough living on their retirement income in the past three years and one in 10 said they worry that taking a lump sum has reduced their retirement income over the long-term.

But 50% who retired since 2015 said they had set a budget for spending.

Vince Smith-Hughes, a retirement income expert at Prudential, said: “This research destroys the myth that people would generally be reckless with their retirement funds. Most people are being very sensible with their choices.

“Critics warned there was nothing to stop people blowing all their retirement funds in one go but the opposite is happening, and the decision to trust people with their own money has proved the right one.

“The big challenge for people retiring is making sure their money lasts the rest of their life and it is encouraging that people are taking a responsible attitude to pension freedoms.

“However, retired people need a clear idea of how much money they will need and how long their retirement fund is likely to last. The best way for most people to do that is to consult a financial adviser.”

How long will your money last?

Prudential said there are two factors which determine how long a pension fund will last in retirement: how much money is withdrawn and how well the fund grows.

Taking out too much money in the early years of retirement and poor investment growth can lead to pensioners running out of money early in retirement.

Its calculations revealed that a 65-year-old with a £150,000 fund in drawdown taking an income of £9,000 a year can expect the money to last until they are celebrating their 101st birthday – if the fund grows by 5% a year.

But if they take an income of £13,000 a year and the fund only grows by 1% a year then the money will run out by the time they are 78, and will only last to their 83rd birthday with 5% annual growth.


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