Only one in 10 of individuals who have cash in their pensions after pension freedoms admit overspending, according to research from Prudential.
The provider, which polled more than 1,000 adults aged 55 plus, reported that nearly four out of five (79 per cent) of savers said they have used lump sums they have withdrawn from their funds wisely.
A quarter of respondents have used their pensions to pay off all their debts, while 6 per cent said they initially withdrew more than the tax-free 25 per cent cash lump sum from their funds.
Since April 2015, when pension freedoms were introduced, the number of people transferring out of their defined benefit pension transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes.
According to figures from the Office of National Statistics (ONS), funds transferred out of pension schemes almost tripled to a record £34.2bn in 2017.
Contrary to what may have been expected, savers have also been careful when it comes to giving money to children and grandchildren, Prudential stated.
Only 16 per cent have helped their children with a deposit for a home and 8 per cent have helped children and grandchildren with education costs.
Considering the future benefits, around a quarter of individuals (24 per cent) said they have found it tough living on their retirement income in the past three years, while some 9 per cent worry that taking a lump sum has reduced their retirement income for the long term.
About half (50 per cent) of those retiring in the past three years have set a budget for spending and the longer that people have been retired the less likely they are to set a budget.
Just 36 per cent who retired five to 10 years ago have set a budget while only 24 per cent who retired 10 years ago or more have set a budget.
According to Vince Smith-Hughes, retirement income expert at Prudential, this research destroys the myth that people would generally be reckless with their retirement funds.
“Most people are being very sensible with their choices,” he argued.
He said: "Critics warned that there was nothing to stop people blowing all their retirement funds in one go but the opposite is happening, and the decision to trust people with their own money has proved the right one.
"The big challenge for people retiring is making sure that their money lasts the rest of their life and it is encouraging that people are taking a responsible attitude to pension freedoms.
"However, retired people need a clear idea of how much money they will need and how long their retirement fund is likely to last. The best way for most people to do that is consult a financial adviser."
According to Prudential, two factors determine how long a pension fund will last in retirement: how much money is withdrawn and how well the fund grows.
Taking out too much money in the early years of retirement and poor investment growth can lead to pensioners running out of money early in retirement, the provider stated.
Prudential analysis showed that a 65-year-old with a £150,000 fund in drawdown taking an income of £9,000 a year can expect the money to last until they are celebrating their 101st birthday – if the fund grows by 5 per cent a year.
But if they take an income of £13,000 a year and the fund only grows by 1 per cent a year then the money will run out by the time they are 78, and will only last to their 83rd birthday with 5 per cent annual growth.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said that his experience since pension freedoms was introduced echoed the research results.
He said: "Most people accessing their lump sums are trying to clear off their credit card or mortgage debt.
"They are not struggling to repay their debts but rather they just choose to fully repay them to remove that weight off their shoulders and start a new chapter in their lives.
"For all clients taking their lump sums early, we always emphasise the effects this would have on their eventual retirement pot and that their pension income will be lower."
maria.espadinha@ft.com
