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Pensioners exercising pensions freedoms caution, says Prudential

29 April 2018

Pensioners are exercising caution when it comes to their retirement funds despite the flexibility offered by the pension freedoms, according to new research from Prudential.

The pension freedoms, introduced three years ago, led to concerns that pensioners would run out of money in retirement, but Prudential’s research has shown that just one in 10 who have stopped work since the new rules were introduced has overspent.

Nearly four out of five (79%) said they had used their lump sums wisely, while a quarter said their funds had gone towards paying off all their debts. Only 6% admitted to initially withdrawing more than the tax-free 25% cash lump sum from their pension pot.

Contrary to expectation, retirees have also been careful in giving money to family members. The research showed 16% have helped their children with a deposit for a house and just 8% have helped children and grandchildren with education costs.

Vince Smith-Hughes, retirement expert, Prudential, said the findings “destroyed the myth” people would be reckless with their retirement fund and in contrast, people are being “sensible with their choices.”

He commented: “Critics warned that 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 that their money lasts the rest of their life and it is encouraging that people are taking a responsible attitude to Pension Freedoms.”

The research showed around a quarter (24%) of pensioners have found it difficult living on their retirement income in the past three years and around 9% fear that taking a lump sum has reduced their retirement income for the long term.

Half of those who retired in the past three years have set a budget for spending, but the longer that people have been retired the less likely they are to set a budget. Just 36% who retired five to 10 years ago have set a budget and that figure falls to 24% among those who retired 10 years ago or more.

Smith-Hughes added: “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 consult a financial adviser.”

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