Pension cash withdrawals are being used for paying off debt, home improvements, holidays and even starting businesses, July figures from Fidelity Worldwide Investment have shown.
Using data from Fidelity’s call centres, customers were found to want to enjoy themselves. Over one in eight (12%) were looking to do home improvements, five percent were planning to go on holiday and a further two percent stated that they want to either set up a business or take up an adult education course.
Richard Parkin, Head of Retirement at Fidelity Worldwide Investment said:
“Retirement nowadays is not about sitting in your slippers and patting the dog all day – although if you want to do that then you absolutely should. 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, enroll in a course or set up their own business.
“Despite predictions that retirees were set to withdraw all their cash in some mad scramble, we’ve not seen this. Absolutely, people have taken out smaller pots but we’ve not seen a stampede whereby customers don’t care about tax or having money for further down the line. This is not entirely surprising when you consider that people have spent 40 years actually building their pot up in the first place.”
The most common use was debt repayment with 29 percent of pensioners wishing to pay off either unsecured loans or a mortgage. This was closely followed by re-investment of the money, with 21 percent putting funds into some other financial product.
With separation growing more common among the over 50s, two percent said they intend to use the cash to fund a divorce.
“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. Everybody talks about the risk of running out of money before you die but there’s another risk. That is being too afraid to spend money so that you don’t get to enjoy the retirement that you’ve saved so hard for. 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.”
|Purpose of Tax Free Cash||Percentage|
|Debts repayment – unsecured and mortgage||29%|
|Income to fund interim period between now and the start date of the State Pension/DB pension||10%|
|Manage Lifetime Allowance issues||2%|
|Business start up||2%|
|Worried Tax Free Cash (TFC) rules will change||2%|
Source: Fidelity Retirement Service – July 2015