Under one in 10 new pensioners in danger of overspending - research

Less than one in 10 new pensioners are in danger of over-spending during their first year of retirement, research suggests.

Despite the new pension freedoms giving retirees a wider range of choices, only 9% of people who are in or about to start their first year of retirement said they had spent too much or believed they would do so, Prudential found.

While 22% planned to celebrate their retirement with a holiday and 16% intended to buy a new car, more than one in three (34%) said they planned not to make any extravagant purchases at all.

However, only one in three (33%) new pensioners said they had set a budget for their first year of retirement, while 13% said they had found living on their retirement income harder than they expected.

The retirement freedoms introduced in 2015 mean that people approaching retirement are no longer required to buy an annuity with their pension pot, which would give them a fixed income. Instead, they have a much wider range of options for how to use their cash.

Vince Smith-Hughes, a retirement income expert at Prudential, said: "It would appear that many post-pension freedoms retirees have heeded the warnings about potentially running out of money later in life and are forgoing extravagant purchases when they first retire."

Some 380 people who are in or about to start their first year of retirement took part in the survey in July and August.

In August, the Association of British Insurers (ABI) said that whilethe vast majority of savers appear to be taking a "sensible approach", a small minority may be withdrawing cash from their pension pots at a rate that sees their money run out in a decade or less.

The ABI's figures showed that between January and March, 79,734 pots of varying sizes had some money withdrawn from them.

More than half (57%) of pots where money was withdrawn involved less than 1% of the total value of the pot being taken out. But 4% of pots where withdrawals were made had 10% or more of their value taken out.

Generally, the first 25% of a pot is tax-free and the remainder is subject to tax.

The ABI previously said it could not tell from the data whether savers taking out big chunks from their pots have other sources of income to keep their finances ticking over, for example money from property investments or other pension pots.

A Government spokeswoman said: "The pension freedoms are a major success and we remain committed to supporting savers by giving them choice over how they use their hard-earned savings.

"We understand that accessing your pension is an important decision. That is why we created Pension Wise to offer free and impartial guidance to consumers so they have the support they need to fully understand the options available to them."

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