- One in five (19%) over 55s with private pensions withdrew taxed lump sums from their pensions last year
- Top three priorities for the money were saving, putting into the bank or making home improvements
- Less than one in 10 (6%) with a private pension plan to or have dipped into their pension savings by withdrawing taxed lump sums in 2020
Canada Life has commissioned new research1 (fieldwork 17-23 March 2020) to understand the priorities for people who have withdrawn taxed lump sums from their pensions over the last year. The research reveals one in five over 55s with a private pension withdrew a lump sum from their pension during 2019, with the most popular reason for doing so to put the money in a savings account, with one in four people choosing to withdraw on average £18,400 to save elsewhere. People also took money from their pension to put in the bank, with on average £10,000 being deposited by one in five people. Making improvements to the home also proved popular with one in five who withdrew on average £11,600.
The highest value priority for the pension cash was to reinvest the money back into stocks and shares, with just under one in 10 people choosing to invest on average £34,7002. Paying off the mortgage was also popular with seven percent of people who typically used £25,5002 of their pension to do so.
Andrew Tully, technical director, Canada Life commented:
“Rather than paint a picture of frivolous spending, the insight shows people are in the main being incredibly diligent and at first glance sensible with their plans for their pension cash. This may perhaps come as no surprise given the amount of hard saving required to amass pensions with real value.
“However, simply withdrawing taxed lump sums from a very tax efficient pensions environment to put on deposit or save into stocks and shares makes no sense whatsoever. Notwithstanding the fact you’ll likely pay tax on any withdrawals, with the changes to inheritance rules around pensions following the introduction of the freedoms, most people should be leaving their money in the pension until it is required for income or to meet other clear spending commitments.”
Plans for 2020
The research also asked the over 55s with private pensions if they had plans to use their right to withdraw taxed lump sums from their pensions this year. Less than one in 10 (or 6%) said they either had already taken some cash or planned to so do at some point this year. Nearly nine in 10 said they wouldn’t be dipping into their pension this year while 6% didn’t know.
Andrew Tully commented:
“It looks like the current economic climate has put the brakes on any plans for people who were looking to dip into their pensions again this year. Being pragmatic about the current volatility we are experiencing and thinking ahead is crucial. Withdrawing cash when markets are so fluid, more than likely crystallising losses in the process and of course paying tax simply for the money to potentially sit in a bank account is clearly not sensible.
“Anyone with any doubt about what to do, apart from sit tight and do nothing right now, should definitely consult the services of a professional financial adviser.”
Source: Canada Life research among 393 people aged 55+ who accessed their pensions in 2019 via taxed lump sum withdrawal. Note respondents could tick all that apply.
Source: Canada Life research among 393 people aged 55+ who are planning to or have accessed their pensions in 2020 via taxed lump sum withdrawal. Note respondents could tick all that apply.
1. Opinium research among 393 people aged 55+ with private pension savings, fieldwork 17-23rd March 2020, who have accessed their pension via a taxed cash lump sum in 2019 or are planning to do so this year.
2. Please note the base sizes for these two answers falls below 50, at 28 and 25 respectively.