New research by Prudential has revealed that 76% of UK pensioners with private or company pension schemes are taking lump sums out of their pension pots, averaging GBP24,154, as they reach retirement but astonishingly many are blowing the money on luxuries or giving it away.
The findings come despite the well publicized gap between people’s retirement savings and the amount they need to live on comfortably in retirement. Of those who had taken a lump sum from company or private pension funds, a staggering 13% said they had given all or part of the sum to their children with 4% giving money to other relatives and dependents.
A large proportion had also used the money to treat themselves with 17% using it to buy a new car, 31% using it to fund home improvements, 18% buying a holiday and 14% just treating themselves to things they’ve always wanted.
Gary Shaughnessy, managing director of retail life and pensions at Prudential, said: Before giving away money from their pension at the point they retire, people should think about the repercussions.
While they may feel at their most financially secure, they should think about how long they will live in retirement, and how long their pension pot has to sustain them. They should also consider the effects of inflation, increasing living costs and the potential cost of care.
As a result, we would urge people to think very carefully about spending lump sums in the early years of retirement and instead encourage them to look at other options, such as investing the money in savings schemes that can be used to supplement their retirement income while maintaining the capital.