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28% of retirees use pension lump sum to clear debt


MGM Advantage, a retirement income specialist, has released a report detailing how retirees use pension lump sums, showing 28% of retirees use them to pay off debt.

The research, in which the company asked retirees who had taken a lump sum at retirement “how they used the money”, showed that 28% of retirees have paid off their debts with their retirement lump sum as a priority. 13% of retirees said they had paid off part, or all of their mortgage, 8% used some of the money to pay off credit cards, while 7% paid off other loans.

The report gives experts an important insight into the spending habits of retirees and foresight into the effect of the new pension freedoms, due in April.
If in April 2015 the trends shown in the recent report continue, new pension freedoms may provide a boost to the economy.

The report also showed that 12% of retirees used some or all of their tax-free cash to renovate or decorate their existing home, while one in ten (9%) said they had used some cash to buy a new car or a holiday. 15% of retirees chose to invest some of their lump sum in stocks, shares or investment trusts, while 27% put some of their tax-free cash in the bank for a rainy day.

Andrew Tully, pensions technical director at MGM Advantage, said:

"This research helps paint a picture of the likely behaviours of people who might take advantage of the new pension freedoms. Debt is a clear priority for many people who have spent a portion of their tax-free cash paying off loans, credit cards or their mortgage. It is important to remember, from April, accessing more than 25% of your pension in one go will mean you pay income tax on any withdrawals."

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