Five months on from the pension freedoms, research looks at how retirees are spending their cash withdrawals
Since April, the pensions industry has been waiting to see what choices retirees make. For those who have taken cash sums from their pensions following the new freedoms, new research has shown that debt repayments have been top priority.
July figures from Fidelity Worldwide Investment have shown that popular uses of pension savings also include reinvestment, home improvements, property purchase and even starting new business.
Paying off debt topped the list, with 29% using the cash to pay off either unsecured loans or their mortgage. Financial usage of the cash accounts for a large proportion of the spend, with a fifth (21%) reinvesting the money in other products, and 10% using the cash as income to fund the interim period until the start date of their State Pension or DB pension. A small proportion (2%) also cited the management of Lifetime Allowance issues as a use for the cash.
Home and family are also important to retirees, with 12% investing in home improvements and 8% purchasing property. Meanwhile, 2% are taking advantage of their new freedom to take cash to help their children out.
It’s not all about finance and necessities, however. The figures also reveal that retirees are taking advantage of the freedoms to treat themselves to a holiday (5%) or a new car (2%). Some retirees also stated that they would use the cash to enrol in an adult education course (2%) or even start a new business (2%).
Richard Parkin, head of retirement at Fidelity Worldwide Investment said: “People are fitter, engaged and view retirement as the time to actually go and do all the things they’ve wanted to do for a while; be it do up the house, enrol in a course or set up their own business.
“What’s important is that people have a financial plan for retirement. This means not just making sure they have what they need to last their retirement but that they feel able to spend money today on the things that are important to them. People should seek expert help and advice in putting together a plan that works for them so they can get the most from their retirement.”