Less than one in ten retirees will drain their pension by taking it all as cash under new freedoms set to be rolled out from April 2015, according to new research published by Friends Life.
The study among 2,000 adults appears to contradict concerns that with the new financial freedoms bestowed on the public they would be likely to spend their savings irresponsibly, revealing that only 7 per cent of the population plan to take all their pension in a single lump sum.
One in four would consider taking 50 per cent or more of their pension pot in cash at retirement, though many of these said they would then reinvest into other products that could produce an income such as buy-to-let property.
Chancellor George Osborne changed the face of the annuities market by stripping away all caps and limits on amounts that can be withdrawn from a pension fund in the Budget in March this year.
From April 2015 retirees can release up to 100 per cent of their pension savings as cash in one lump sum and will no longer face the 55 per cent penalty charge but will rather be taxed at marginal rates - meaning as little as 20 per cent for most - on the three-quarters of the fund not already available tax-free.
Friends Life’s research reveals the average amount people said they would release at retirement was 33 per cent.
Just under a quarter of people - 24 per cent - plan to reinvest the money they would take out at retirement, which shows the need for clear decisions on the ‘guidance guarantee’ promised by the government in the Budget.
This is further emphasised by the fact that 28 per cent of future retirees are struggling to understand the new financial freedoms and do not know where or how they will reinvest money released from their pension pot.
Those more confident are most likely to reinvest in the new ISA, with 22 per cent choosing this option. A further 21 per cent said they would be most likely to reinvest in buy-to-let property and 14 per cent stocks and bonds.
Mr David Still, managing director retirement income at Friends Life, said: “While from next year retirees could spend all of their pension savings in one go, our research shows securing long term financial security remains the most important consideration for the vast majority of people.
“Managing money to ensure it lasts throughout retirement is hugely important and our research suggests that consumers understand they have to be responsible for their future. To be as prepared as possible, people should ensure they seek guidance and thoroughly investigate all their options.”
