Splashing the (tax free) cash: Over 55s expect to spend a third of their pension Tax Free Cash within six months of withdrawal

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• Over 55s have spent, or expect to spend, a third (32%) of their tax-free lump sum within the first six months of taking it, on average
• Women more likely to spend a larger proportion of their tax-free cash in the first few months than men
• Standard Life outlines key considerations around how and when to take tax-free cash

Over 55s who plan on using their tax-free pension cash estimate that they’ll spend, or have already spent, nearly one third (32%) of their lump sum on average within the first six months of withdrawing it, according to new research¹ from Standard Life, part of Phoenix Group. At the other end of the scale, one in ten (11%) over 55s expect to spend or have spent between 90 and 100% of their tax-free pension pot within half a year of withdrawing from it.

Meanwhile, just over a quarter (27%) do not know how much they’ll spend or have already spent.

The Tax Free Cash gender gap

Standard Life’s research also found that women who took or plan to take a lump sum at the point of retirement have either spent or intend to spend a larger proportion of their tax-free lump sum within six months of accessing it, spending 37% of their pot on average, compared to men spending 29%.

Dean Butler, Managing Director for Retail at Standard Life comments: “Being able to withdraw a quarter of your pension pot tax-free is one of the great pension perks, and many people look to make the most of this once they reach the age of 55. It’s your hard-earned cash and you have a right to enjoy it, but it’s worth considering all your options before withdrawing.

“It can be tempting to spend the cash immediately, but remember your pension savings need to last you throughout your retirement – which will hopefully be longer than you think. Taking too much at once, or too early, could mean that you possibly run out of money later. In addition, leaving your pension savings invested for longer gives the opportunity for additional growth so it can make sense for some people to put off accessing their savings for as long as possible.

“Taking your tax-free lump sum in chunks over time can be a tax-efficient way of withdrawing your pension savings and can help spread the benefit over multiple years. Some people also choose to use their tax-free lump sum as way of reducing their working hours and starting a phased retirement. If you cut back on your hours, you could use some of your tax-free lump sum to top up your reduced salary.”

“It’s also crucial to know that before you access any taxable income from your pension plan, the total amount you can pay in each tax year and still get tax relief on is £60,000, or your total salary, whichever is lower, and then you’d need to pay a tax charge for anything over this amount. However, once you do start taking taxable income, for most people this will reduce to £10,000 a year. This is a really important consideration when working out plans for taking your retirement savings, particularly if your plan is to keep working and paying in after you start to take your money.”

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Notes to Editors

¹ Opinium conducted research among 2000 UK adults aged 18+ between 12 and 16 May 2023. Results have been weighted to be nationally representative.

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples' life savings for nearly 200 years
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employer' pension scheme.
• Standard Life is part of the Phoenix Group, the largest long-term savings and retirement business in the UK. We're proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about.
• The value of investments can go down as well as up, and may be worth less than originally invested.