Chris Noon, partner at Hymans Robertson – an independent pensions consultancy, said he expects an additional £5bn to be withdrawn by retirees from their pension pots under the new pension “freedoms” next year, on top of the £5bn normally withdrawn.
Of the extra £5bn, Noon said he expects to see 60% spent on “luxuries” such as cars and holidays. This additional spending could increase UK GDP by 0.6% in 2015.
While not as drastic as predicted by Noon, new research from Investec Wealth & Investment supports this view. Investec found 70% of those surveyed within the age 55-64 age bracket saying they plan to spend funds on holidays and travel in the first 10 years of their retirement, while 38% plan to spend on home improvements and 26% who plan to buy a new car.
However, in contrast to some predictions made since the spring Budget, almost three-fifths said they intend to reduce spending further into retirement. 82% of respondents said people who have saved regularly in order to build up a pension pot over their lifetime are “likely to take a cautious approach to spending in retirement”.
It also found that just 13% of people aged 55-64 think that the changes to annuities announced in the March Budget will encourage them to spend more during the first few years of retirement.
Nick Gartland, senior financial planning director at Investec Wealth & Investment, said: “It is good to see that the majority of people are looking to take a sensible approach to retirement saving and spending given the profound changes announced in the March Budget. If you save regularly throughout your working life you are unlikely to blow your savings in one go or too quickly, which is good to hear.
“Notwithstanding, there remains a need to be very careful how you invest and spend, given the changes and the new freedoms people now have: for instance, investment underperformance could become a greater issue if people are not locked into an annuity while tax issues and making ill-advised product purchases at the point of retirement could also become more serious.”
