A fifth or 20 per cent of individuals aged over 55 have either already utilised or intend to utilise their tax-free pension funds for home renovations, which include various projects like constructing a shed, converting lofts, adding conservatories and refurbishing kitchens, according to research from Standard Life.
The most common use of the tax-free pension lump sum among individuals over 55 is for financing home renovations. A slightly smaller percentage, 16 per cent, have purchased or plan to purchase a new car, while 13 per cent have used or will use the funds for short-term holidays and 7 per cent for long-term vacations or travel.
Around 14 per cent have or will use it to enhance their current lifestyle, whereas 15 per cent have used or will use it to pay off their mortgage, credit card debts, or loans.
Furthermore, nearly 8 per cent have utilised or will utilise the funds to cope with the rising cost of living.
The research also suggests that individuals who are employed either on a full-time or part-time basis are more inclined to use or have used their tax-free pension funds to settle their mortgage or other debts, in comparison to those who are not currently employed, 20 per cent compared to 12 per cent.
Standard Life managing director for retail Dean Butler says: “One of the great benefits of a pension is that you can take a quarter of your pot without paying tax on a single penny of it, all the way up to a maximum of £268,275. If you’ve kept up your contributions and grown your pot over a number of years, this could equate to a substantial amount of tax-free money by the time you come to take your savings.
“It’s interesting to see how people choose to make the most of this hard-earned boost, at the moment it looks like many decide to invest in some long-awaited home improvements – perhaps partly motivated by being cooped up during lockdown years staring at everything wrong with their homes.
“Everyone deserves to enjoy their tax-free cash, however, if you’re wondering how much of it to spend, or whether to spend any at all, remember that your pension savings need to stretch for the whole of your retirement, and so taking too much too early or at once could cause difficulties later. You don’t have to take all your tax-free cash at once if you don’t want to. Your tax-free pension lump sum is a real bonus, and it’s good to set some time aside before spending to work out how to get the most out of it.”
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