How are the over-55s using their pension cash?
The new pension freedom rules have now been in place for a couple of weeks. So what are pension savers doing with their cash? Are they keeping it locked up, or shelling out on a new sports car?
The new rules
Those aged over 55 now have the opportunity to get their hands on their full pension pots and essentially do what they like with the money. It’s all the result of the sweeping pension reforms announced by George Osborne in the 2014 Budget.
For a full guide to how the freedoms work, read Pension freedom changes: all you need to know.
How much are people withdrawing?
There had been concerns that pension savers would get a bit carried away with the new freedoms, withdrawing all of their cash and going on mad spending sprees. Thankfully that doesn’t seem to be the case. A study by investment company True Potential on behalf of Admiral found that just 8% of savers wanted to withdraw their pension in one lump sum following the changes.
Indeed, more than half said they had no plans for any withdrawals this year at all.
If you do want to make use of the new freedoms, you should ensure you pay as little tax as possible. Check out our guide How to take tax-free cash from your pension.
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Start up a new business
Research from AXA Wealth suggests as many as one in ten over-55s are looking to put their savings pots towards starting their own small business or going into consultancy.
There are regional variations in the sorts of businesses they’d want to start up too, with tea shops most popular in the South West and manufacturing a common goal in the Midlands.
Other popular start-up ideas across the nation include businesses focusing on alternative medicine, travel, accountancy, computer repairs and art galleries.
Property investment
Many pension providers have reported their customers are keen to move their pension cash into property.
So it should be no surprise that mortgage lenders are falling over themselves to offer more buy-to-let mortgages. According to Moneyfacts, there are now 226 different fixed rate buy-to-let mortgages. That’s 60 more than six months ago, and 150 more than a year ago.
Some lenders, like Nationwide, have also moved to increase the maximum age they will offer mortgages up to.
Home improvements
It’s not just new properties that people want to put their cash towards. According to the National Association of Pension Funds, almost one in five pension savers plan to use the cash on home improvements.
Fidelity told us lots of people are going for new kitchens in particular!
Holidays
[SPOTLIGHT]Another popular use for pension savings has been to go on a big holiday. Research for the travel association ABTA found that a third of those aged 55-75 looking to make use of the new rules would spend at least some on a holiday or travel.
And it’s not just any old holiday they are planning either. Almost 60% said they would go on the holiday of a lifetime, with over a third of respondents looking to spend between £2,000 and £5,000 on a trip.
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Clearing debts
Suddenly having access to your pension pot has given plenty of pensioners the chance to get rid of some debts that were hanging over them.
Research from LV= found that around 12% were looking to take advantage of the new rules would look to use some of the cash to pay debts and bills.
More exotic uses
There have also been plenty of interesting one-off stories about what people are using their cash for:
- one Standard Life customer said they wanted to use their pension cash to purchase a speedboat;
- one Fidelity customer wanted to buy her ex-husband out of their French holiday home;
- another Fidelity customer said they would use the money to buy an automatic car for a disabled relative.
Don’t be a victim
While the new freedoms present a range of opportunities to those in or approaching retirement, they are also an opportunity for scammers.
It has resulted in a campaign from the Pensions Regulator, urging people to ‘scamproof their savings’.
Read Scammers set their sights on older people.
Is your pension on track? Keep on top of your investments' performance with Plans
More on pensions:
How to take tax-free cash from your pension