Pensioners reject the champagne lifestyle as just one in 10 overspend in first year of retirement

23 September 2016 

  • Despite new freedoms to access pension pots, one in three new pensioners don’t plan to make any extravagant purchases in first year of retirement
  • Luxury holidays and cars top the shopping list for those that do plan to splurge in their first year of retirement 
  • Of those who have taken cash from their pension, over two-thirds (68 per cent) did so without taking any financial advice

Despite fears that pension freedoms would see retirees blowing their cash on expensive purchases, fewer than one in 10 new pensioners (9 per cent) overspent or believe they will overspend in their first year of retirement, according to new research from Prudential1.

In a specially commissioned poll of pensioners in the first year of retirement, Prudential found most people carefully striking a balance between rewarding themselves for years of hard work while also making sure their pension savings won’t run out. Although many had planned to have a luxury holiday (22 per cent) or buy a car (16 per cent), the most popular plan – among 34 per cent of new retirees – was to not make any extravagant purchases.

The survey revealed further signs that pensioners are balancing the desire to celebrate their retirement against a healthy dose of realism. When asked about their attitudes to retirement savings 44 per cent said that having worked all their life, now was the time to enjoy their money, while 36 per cent were more concerned about their retirement income lasting for the rest of their lives.

The research also highlighted some worrying signs that recent retirees may be setting themselves up for an uncertain financial future. Only one in three (33 per cent) new pensioners said they had set a budget for their first year of retirement, while 13 per cent said they had found living on their retirement income harder than they expected. Perhaps most worrying of all is the fact that of those who took cash from their pension pots in the first year of retirement, 68 per cent may have put their future incomes at risk because they didn’t take any professional financial advice before doing so.

Vince Smith-Hughes, a retirement income expert at Prudential, said: “It would appear that many post-pension freedoms retirees have heeded the warnings about potentially running out of money later in life and are forgoing extravagant purchases when they first retire.

“However, even those taking a more cautious approach could be risking their income later in retirement with the initial choices they make. The pension freedoms have opened up a whole new set of possibilities for retirees, but for many people hoping to make the most of the new flexibility while also ensuring they don’t outlive their savings, the help of a professional financial adviser can be very important.

“Irrespective of the changes to the rules around taking an income in retirement, anyone looking to secure a comfortable life after giving up work should try to save as much as possible as early as possible in their working lives.”

Separate data from the Association of British Insurers2 underlines the responsible approach to the new, flexible rules that most pensioners are taking– the total amounts being withdrawn from pension pots fell to £750 million in the first three months of this year, compared with £1.4 billion, £1.27 billion and £860 million respectively in the final three quarters of 2015. More than half (55 per cent) of cash withdrawals made from pension pots in 2016 have been sums under £10,000.

Prudential’s research also found that among those who had taken and spent a cash lump sum from their pension savings 39 per cent felt that they had spent it wisely while a further 19 per cent said they’d enjoyed spending the money.

Notes to editors

1 Research conducted between 5 July and 3 August 2016 by Consumer Intelligence among a specialist sample of 380 people in, or about to start, their first year of retirement.


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