Just 1% plan to spend entire pension pot on luxuries

Just 1% of staff aged 50-75 plan to spend all their pension pot on luxuries, according to research by PricewaterhouseCoopers (PWC).

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The study, which surveyed 1,200 UK adults aged between 50 and 75 years, also found that just over a quarter (27%) of respondents intend to spend some of their retirement savings.

Of that 27%, 74% want to use their pension for general expenditure, 70% intend to use some of it to treat themselves, and 22% want to carry out home improvements or pay off debts or their mortgage.

The research also found:

  • 67% of respondents factored uncertainty of income into their retirement decisions.
  • 28% plan to purchase an annuity.
  • 45% of respondents are looking to draw an income using a drawdown product.
  • 61% are likely to factor in tax-efficiency around their pension.
  • Just 45% are going to consider investment risks during their retirement planning.
  • 31% of respondents plan to invest some, or all, of their pension pot. Of this group, 39% would like to invest through online platforms and brokers, and 17% want to buy an investment fund through an independent financial advisor.

Jonathan Howe, insurance leader at PWC, said: “At this early stage, drawdown products have clearly emerged as the preferred option for those looking to secure an income in retirement, but taking the money and investing is also being considered by many.

“The diversity and complexity of these new options means people are in danger of being caught out by unexpected costs. Despite extensive publicity, over a third of people are not currently considering tax efficiency, and over half are not considering investment risks when deciding how to manage their pension pot.

“This survey highlights that many are keen to take control of their retirement planning and be more proactively involved in investment and savings decisions. With the right guidance, and affordable advice models, we could see a more engaged and financially literate population emerging as a consequence of these reforms.

“Providers are in the very early days of both giving guidance to customers and developing new products they hope will engage this new market by meeting both their needs and wants. There is a huge opportunity for pension providers and insurers which respond to this rapidly changing, customer-centric, environment.”

Raj Mody, head of pensions consulting at PWC, added: “It’s clear from this survey that consumers are open to a range of options for how to use their retirement finances. However, savers should weigh up their options carefully before drawing down pension savings, and incurring tax on them, because they would not generally be able to return their funds to a tax-privileged shelter once they have taken their money out.

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“Also, if further flexibilities for annuities already in payment are introduced next year, for some people it may be sensible to wait until they know their full set of options, if they can, rather than make short-term decisions now in a rush.”