A research by Prudential found that one in ten pensioners now regret the decision of taking a lump sum on retirement and spending the money.
The research, published today, also found that 43 percent pensioners are living a “cautious” retirement life worrying about sufficient future income to get by.
Surprisingly, despite the economic downturn, the survey of 1,001 respondents found that 79 percent of those drawing a personal or company pension took a lump sum upon retirement in 2011, compared with 76 percent three years ago.
Explaining the situation, Prudential said for many withdrawing the lump sum at retirement is the most tax efficient way of accessing some of their pension savings. Nonetheless, how the money was spent depended upon the pensioner’s long-term retirement income concerns.
More than half of those who had taken lump sum put the money in a savings account, while a quarter chose to invest the money in stocks, shares or investment trust.
For people with company or private pension savings, the decision to take the tax-free lump sum is the best available option, said Vince Smith Hughes, head of business development at Prudential.
“However, some pensioners are beginning to regret the way they used the tax-free cash. The days of buying a shiny new car or going on a once-in-a-lifetime holiday may be gone, to be replaced by making savings and investments with the lump sum to supplement retirement income,” he added.
“There is no one-size-fits-all answer to the financial choices that people need to make when they retire. For example, spending the money from a tax-free lump sum and taking a level annuity with the balance of your fund will effectively fix the level of your retirement income – and for some this may provide the stability they need,”, he explained.
“Others may wish to explore more flexible retirement products that take into account the effects of inflation”, added Hughes.