Four in Five Pensioners Say They Have Spent Their Lump Sum Wisely

Almost four in five (79 per cent) of retirees believe that they have used the lump sum from their pension fund “wisely”, according to a new report from Prudential.

Since the introduction of Pension Freedoms in 2015, the UK’s pensioners have proven to be careful with their money, with just one in ten admitting to overspending, and just six per cent saying that they withdrew more than their tax-free 25 per cent lump sum upon retirement.

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Almost a quarter of all retirees have used their pension lump sum to pay of all their debts, while only nine per cent worry that taking a lump sum has reduced their retirement income for the long term.

“This research destroys the myth that people would generally be reckless with their retirement funds,” said Vince Smith-Hughes, a retirement income expert at Prudential.

“Most people are being very sensible with their choices.

“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.”

Prudential has put together a research paper which charts the impact of Pension Freedoms on retirement incomes, and it has concluded that two factors determine how long a pension fund will last in retirement: how much money is withdrawn and how well the fund grows.

The research found that pensioners risk running out of money if they withdraw too much in the early years of their retirement and settle for a low interest rate on their pension funds.

According to Prudential analysis, 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 five per cent a year.

But if they take an income of £13,000 a year and the fund only grows by one per cent a year, then the money will run out by the time they are 78.

“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,” added Smith-Hughes.

“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 consult a financial adviser.”

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.