A fifth (20%) of over 55s have either spent or plan to spend their tax-free pension pot on home renovations such as building a shed, loft conversions, conservatories, and kitchen refurbs, according to research from Standard Life, part of Phoenix Group.
Paying for home renovations is the most common way over 55s have used or will use their tax-free pension lump sum. A slightly smaller proportion (16%) bought or will buy a new car, 13% used or will use it for a short-term holiday and 7% for a long-term holiday or travelling. One in seven (14%) used or will use it to improve their current lifestyle, while 15% have paid or will pay down their mortgage, credit card bills or loans.
Additionally, almost one in ten (8%) have or will use it to help cope with the rising cost of living.
Workers more likely to use tax free pension cash to settle debts
Those who are working either full or part time are more likely to use or have used their tax-free pension cash to pay their mortgage or other debts, compared to those who are not working (20% vs. 12%).
Dean Butler, Managing Director for Retail at Standard Life comments: “One of the great benefits of a pension is that you can take a quarter of your pot without paying tax on a single penny of it, all the way up to a maximum of £268,275. If you’ve kept up your contributions and grown your pot over a number of years, this could equate to a substantial amount of tax-free money by the time you come to take your savings. It’s interesting to see how people choose to make the most of this hard-earned boost, at the moment it looks like many decide to invest in some long-awaited home improvements – perhaps partly motivated by being cooped up during lockdown years staring at everything wrong with their homes.
“Everyone deserves to enjoy their tax-free cash, however if you’re wondering how much of it to spend, or whether to spend any at all, remember that your pension savings need to stretch for the whole of your retirement, and so taking too much too early or at once could cause difficulties later. You don’t have to take all your tax-free cash at once if you don’t want to. Your tax-free pension lump sum is a real bonus, and it’s good to set some time aside before spending to work out how to get the most out of it.”
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