The majority of over-55s with a private pension do not plan to touch it in 2020, with the current economic climate “putting the brakes” on spending, new research from Canada Life has revealed.
The research found that less than one in 10 (6%) people over the age of 55 said they had already taken cash or planned to do so at some point this year, while nearly nine in 10 said they would not be dipping into their pension pot.
Andrew Tully, technical director, Canada Life, said: “It looks like the current economic climate has put the brakes on any plans for people who were looking to dip into their pensions again this year. Being pragmatic about the current volatility we are experiencing and thinking ahead is crucial.
“Withdrawing cash when markets are so fluid, more than likely crystallising losses in the process and of course paying tax simply for the money to potentially sit in a bank account is clearly not sensible.”
The findings also showed that one in five (19%) over-55s withdrew taxed lump sums from their private pensions in 2019. The most popular reason for doing so was to put the money in a savings account, with one in four (26%) choosing to withdraw an average £18,400 to save elsewhere.
According to Canada Life, the second most popular reason for pension withdrawals was to put the money in the bank, with just over one in five (22%) depositing an average of £10,000, while home improvements also proved to be popular with a fifth of savers (20%) who withdrew on average £11,600.
The highest value priority for the pension cash was to reinvest the money back into stocks and shares, with just under one in 10 people (8%) choosing to invest on average £34,700.
Seven percent of respondents said they withdrew a lump sum to pay off their mortgage, using on average £25,500 of their pension to do so.
Tully said that rather than paint a picture of “frivolous spending” the research showed that people are being diligent and sensible with plans for their pension cash.
He said: “This may perhaps come as no surprise given the amount of hard saving required to amass pensions with real value. However, simply withdrawing taxed lump sums from a very tax efficient pensions environment to put on deposit or save into stocks and shares makes no sense whatsoever. Notwithstanding the fact you’ll likely pay tax on any withdrawals, with the changes to inheritance rules around pensions following the introduction of the freedoms, most people should be leaving their money in the pension until it is required for income or to meet other clear spending commitments.”
