How people spend their time and money during retirement
After the announcement of the new pension rules, which took effect in April, former pensions minister Steve Webb explained that the new freedoms and flexibility would allow people to cash in their entire funds, and even blow the lot on a Lamborghini if they wanted to. This controversial statement caused a stir and it was anticipated that around one in eight people would take advantage of the new rules and splash their cash. So how much has been withdrawn so far and what is it being spent on?
Despite the assumption that more than 200,000 people would be eager to get their hands on their entire pension pot, just 60,000 funds have been accessed so far, and even fewer pensions have been emptied, with the average withdrawal being around £17,000. The reason for this could be the tax implications of accessing a fund. A YouGov survey found that 56% of people who were initially very likely to withdraw their pension had a change of heart once they learned of the large amounts of tax they would potentially have to pay. This suggests that the tax rules in place may act as a safeguard against people cashing in their pensions frivolously. So what are people releasing their cash for?
According to YouGov’s report, Understanding Pensions and Retirement 2014, 50% of people said their main ambition for retirement is to spend more time travelling. Holidays, weekend breaks and cruises are becoming a popular way to enjoy later life. The stereotypical idea that retirees just sit at home having tea and cakes is being challenged, as people are becoming more adventurous and determined to make the most of life after work.
The bank of Gran and Grandad
The younger generation is often reliant on older relatives for financial support. Almost 75% of grandparents have helped their grandchildren with university fees, or intend to do so, with living expenses, student gadgets and accommodation costs among the top financial responsibilities that grandparents help with. It is estimated that this year’s retirees who support their family will provide around £250 per month or £3,000 per year on average.
Not everyone stops working when they reach retirement; reducing working hours from full-time to part-time is becoming more popular. People may continue to work because they enjoy their job and it gives them a sense of purpose and satisfaction, but others simply cannot afford to stop working. With life expectancy increasing, continuing to work during later life is a harsh reality and a must for many.
Clearing debts is the number one reason why people access their pension funds. Typically people with pension pots worth less than £10,000 have accessed the entire sum to help with debt repayments.
Business and property
A small number of retirees plan to start up their own business venture, which if successful would provide an income and could also be passed on to loved ones. For others, investing in property and becoming buy-to-let landlords is preferable to keeping their fund in the wrapper of a pension. Whether or not this is sensible and lucrative depends on several factors and the decision should not be taken lightly as it is a risky one.
The way in which retirement and retirees are perceived is changing; life expectancy is increasing and people are becoming more adventurous.
How do you plan to spend your years in later life? Let us know with a comment below.
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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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