Research conducted by insurance and pensions major Prudential shows some 79 percent of UK pensioners with employer or private schemes are taking an average tax-free lump-sum of £21,500 on retirement.
The current amount is 11% lower than £24, 154 – the average lump sum taken by retirees in 2008, in a clear indication that the global economic meltdown had its effect on pension funds and subsequent payouts.
The Prudential survey on 1,000 retirees showed an increasing number was spending the money on DIY or luxuries, and some even choosing to give it away. The report warned that the payout pensioners receive will reduce ‘dramatically’ following reduced pension savings.
A significant chunk of retirees chose to clear their debts with the tax-free windfall. 19 percent chose to clear some or all of their mortgages while 17 percent chose to pay off their credit card debts or loans.
A majority, 52 percent to be precise, chose to put at-least some of their money in a savings account, a percentage equal to 2008 figures.
The second most popular option was improving the home. 33 percent of those surveyed – 3 percent more than 2008, decided to refurbish their homes. However, the biggest jump, 13 percent to be exact, was recorded on the number of people who chose spend some or all the money on holidays.
One in five chose to give some or all the money to family or relatives while a similar percentage chose to buy a new car with the lump-sum cash.
Although people should enjoy the cash they have accumulated after a lifetime’s hard work, they should also try to assess how this may impact their long term financial health, Vince Smith-Hughes, head of pensions business development at Prudential.
“It should also be remembered that there are several methods that can be used to convert the lump-sum into an additional source of income”, said Mr. Smith-Hughes.
“A high proportion of pensioners are choosing to spend their lump-sum on luxuries, despite the fact that the cost of living is rapidly increasing, so we’re urging people to think carefully about how they are going to use this money and avoid making impulse purchases that may ultimately put them under financial strain”, he added.
“Consulting a financial adviser will help to determine the different options available”, he advised.