How do people spend pension release
Pension release is a legal way to access up to 25% tax-free cash from a pension fund from the age of 55, and there are no restrictions on how it can be used (although it isn't suitable for everyone and certainly shouldn't be released without a good reason). Most people who opt for pension release do so with a view to improving something, like their home, financial standing or children's future. The following shows how our clients have been using pension release:
- Tackle or clear debts: 70%
- Home improvements: 20%
- Other: 10%
"Other" includes clearing the mortgage, giving money to children or grandchildren for house deposits and tuition fees, having a financial cushion, taking a holiday if there is money left after its primary use, and trying to get back into employment by paying for a course to refresh skills or purchasing a car.
Clearing debt is a very important part of retirement planning, because interest rates can take a chunk of your money and with pensions you want to maximise your returns rather than continue to pay out on debts.
This is similar for home improvements - if you know work on your home will be needed in the foreseeable future, getting it taken care of earlier will not only save time and aggravation during your retirement years, but it could work out being cheaper because the work required may be less than it would have been five years down the line. Home improvements can also increase the value of a property, which may be appealing if you plan to later release equity from it, or even just leave it to the children.
Far fewer people are spending the money on things unrelated to debts or their home, which may be surprising considering how many other things there are to do! The figures show that people tend to take pension release for the right reasons, and don't treat it as another bank account they can dip into for general spending. Although holidays appear in 'other', this is in the scenario when a person releases perhaps £10,000 and has enough left for a vacation after doing what they needed the money for, such as clearing credit cards. Spending in this category most frequently consists of things like paying the mortgage and creating a financial safety net, while other uses include buying a car to help with getting work, and assisting family members with student fees and house deposits.
Our data show that pension release can be very useful in multiple situations and can be invaluable to people who use it to make things easier or more affordable during their retirement, but it also shouldn't be forgotten that it isn't right for everyone.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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