Almost a quarter of Baby Boomers have fully withdrawn their tax-free pension lump sum

Nearly a quarter (24 per cent) of people aged between 58 and 75 have already taken out all of their tax-free pension lump sum, a survey by Dunstan Thomas has found.

According to the research, a further 19 per cent had taken out some of their 25 per cent tax-free pension allowance, meaning that 43 per cent of Baby Boomers had accessed their tax-free allowance.

Of those who had taken some or all of their pension tax-free cash, 24 per cent had put the cash straight into the bank.

A further 7 per cent had used the money to supplement their income and cover everyday bills, while just over 4 per cent used it on a holiday.

More than one in 10 (13 per cent) used it repay unsecured debt, 10 per cent used it for home improvements, 9 per cent to make additional home mortgage repayments, 8 per cent invested it into stocks and shares, and 8 per cent used it help purchase an investment property.

“The Chancellor has probably left it too late to raid pensions tax-free cash in order to balance his books, now that 43 per cent of Baby Boomers have already accessed this much-loved feature,” commented Dunstan Thomas director of retirement strategy, Adrian Boulding.

“Our research shows that when people retire, they often use their pensions’ tax-free cash to improve their home, buy a new car, have a great holiday, or pay down the mortgage.

“All of these offer a shot in the arm to the economy at a time when consumer spending may otherwise be falling in the face of inflationary pressures and global uncertainty arising from the Russia/Ukraine conflict.

“However, it’s a real shame that of the Baby Boomers that have accessed the money already, nearly a quarter are simply putting it in the bank where the interest they earn may be negligible and cannot hope to counteract the negative impact of rising inflation.

“For those with no compelling need to clear high interest or unsecured debts, it makes far more sense to keep the money invested in their pension, growing tax-free, perhaps in investments with strong ESG ratings. That way, funds can be put to work to help the planet or society at large.

“Baby Boomers will be more likely to keep their money invested in their pensions if the Chancellor uses his Spring Budget to confirm that tax-free cash will remain as a long-term feature of the pensions landscape.”

Dunstan Thomas’s study also found that 38 per cent of Baby Boomers were planning to retire after state pension age (66), with one reason cited for delayed retirement being inadequate expected retirement income.

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