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Retirees not recklessly spending pension wealth

Pensions - thumbnailOlder people are holding onto their savings and are reluctant to spend money impulsively, according to research from the Institute for Fiscal Studies.

A survey published today looking at how individuals use their wealth once they retire finds many are not drawing down as much wealth as they could.

It says, on average, individuals will draw down just 31 per cent of net financial wealth between the age of 70 and 90.

Even among individuals in the top half of financial wealth distribution, net financial wealth appears to be drawn down by just 39 per cent, on average.

The IFS suggests this wealth, whether held in housing or in financial assets, is likely to be passed on to later generations.

However, inheritances will typically only be received at relatively older ages and so someone currently aged 40 might expect to receive a bequest from their parents at age 63.

IFS associate director Rowena Crawford says the way wealth is inherited will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings.

Therefore the increased freedom people now have over how they spend their pension wealth in retirement will require careful monitoring, she adds.

Royal London policy director Steve Webb says: “This report confirms that the vast majority of pensioners who have saved through their working life are cautious with their money and leave unspent wealth at the end of their lives.

“This is great news for those who believe in pension freedoms. The IFS research suggests that the biggest concern about pension freedoms is likely to be about excessively cautious retirees spending too slowly than it is about reckless retirees blowing their pension savings on lavish living.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. From a quick skim-read, for me the most salient and worrying fact that comes out of the report is that *median* retirement wealth is little more than half of *mean* retirement wealth.

  2. I would venture to suggest that the type of people who spend their pension savings (recklessly or otherwise) will not be the type of people willing to participate In this survey (people who spend their savings in such a manner don’t tend want people to know and would certainly not wish to discuss it with a stranger!) and so the results may be somewhat divorced from reality!

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