FTSE 100: 7682.27 ▲ 125.83 (1.67%)

Frugal pensioners more likely to save than spend, says IFS

Frugal pensioners more likely to save than spend, says IFS

by Michelle McGagh Jun 14, 2018 at 10:50


Pensioners are defying the worst fears around the pension freedom reforms and are holding on to their wealth in retirement, new research has revealed.

A report from the Institute of Fiscal Studies shows that cautious retirees are not spending most of their financial wealth but are holding back as much as they can to pay for care home fees or to leave it to family and friends.

It revealed that while wealthier people tended to consume their assets at a faster rate, all sections of society were on average underspending. People aged 55-64, who would have been on the cusp of retirement in 204/15 had an average of £390,000 in non-pension wealth – the majority of which (60%) was held in their home.

Another 22% was in savings and ISAs, 11% in other property, and 7% in business assets, land, and antiques.

The report shows real net financial wealth is drawn down at a rate of little more than 1% a year, with those aged 69 to 81 drawing just 14% of their wealth over 12 years, calculated between 2002/03 and 2014/15.

Rowena Crawford, associate director at the IFS, said older people do not ‘draw on their wealth much in retirement’, and most homeowners do not access the equity in their homes.

‘Even financial wealth is drawn down only slowly,’ she said. ‘This means that most wealth held by retired people is likely to be bequeathed to future generations, rather than spent.’

Crawford said this will have implications for current working-age people, especially those with wealthy parents and few siblings.

‘Given the increased freedom people spend their pension wealth in retirement, carefully monitoring how the use of wealth evolves in future will be important, both for the living standards of the retirees themselves, and also for younger generations.’

The pattern of squirrelling away wealth may change in future, however, as of those in their 50s, 30% expect to use savings, 30% expect to use their primary housing, and 10% expect to use other property to fund retirement.

Crawford said for those in their 50s, housing wealth ‘is not always considered ‘off limits’’ and these people are likely to downsize or use equity release products to access property wealth.

Tom Selby, analyst at broker AJ Bell, said some well-off pensioners may be tightening the belt too far when they did not have to.

‘Such thrift will be perfectly sensible in some circumstances, particularly where individuals have relatively small savings pots and choose to hold onto the money to cover any unexpected bills,’ he said.

‘That said, it is likely some of these people are overly worried about running out of money during retirement and are underspending as a result.’

He said this ‘reckless conservatism’ had already been identified in Australia, where individuals can access their entire pension pot in one go, and ‘may well prove to be a central issue for UK policymakers to address following the introduction of the pension freedoms in 2015’.

Add a comment

Comments  (10)

  • Keith Hilton: 

    If the government want pensioners to draw down their pension pots more quickly then they should reduce the amount of tax paid on it.

    15:20 on 14 June 2018

  • Andrew Hill: 

    Given the ability of government to waste money on an industrial scale I would imagine that the beneficiaries of the pension reforms are much more capable of managing their money than the politicians and other self appointed experts.

    10:40 on 15 June 2018

  • Law Man: 

    While I have no evidence, I wonder if the reason is:

    (1) those of us who are over 65 tend to be more frugal, detesting debt and having memories of when people were often poor

    (2) while more over 65s are likely to have good works pensions.

    Conversely younger people will have to save more and use it to finance their retirement.

    17:27 on 15 June 2018

  • Mystery Woman: 

    Agree with Law Man's (1)

    If the government want us to provide for our old age, don't take it away via stealth

    09:47 on 16 June 2018

  • magic beans: 

    ......‘reckless Conservatism’...... that looks better.

    10:04 on 16 June 2018

  • Franciscan: 

    I am in my 80`s and since the war years my generation has probably saved more wherever possible. It becomes a habit. I agree with Law Man. It is more important to me to put aside cash for my children and wife than spend it. I enjoy the small things as much as anything and am very happy with my lot.

    17:08 on 16 June 2018

  • PeterH: 

    I agree with Keith H.

    If you take more than £11,850 from your pension in the current tax year you will pay 20% tax and 40% tax if you take more than £46,350.

    19:54 on 16 June 2018

  • huudi: 

    Agree with Andrew Hill, Lawman/mystery woman. Having lived in poverty, it gives a distinct fear of it returning. The 'encouragement' to spend only applies to lower classes while the very wealthy are given ever-increasing tax breaks to encourage saving.

    Also, we live in a world of shoddy goods, show me something I want that is well-made then I will buy it.

    10:27 on 18 June 2018

  • Steve Argent: 

    Historically there have been tax advantages of saving into a pension. Major tax reforms mean we now don't have to spend it all. Once retired we have the time to search for the best deals on the internet (and so can save thousands). I don't mind spending money, but I do like to get a good deal.

    Of course if the government seeks to raise taxes on well off pensioners, the incentives to keep savings may change.

    10:12 on 20 June 2018

  • huudi: 

    If you run a building society(Nationwide) for the benefit of your fellow man, we lowly taxpayers will contribute 250k pa towards your pension and to encourage you to take this gift you are now allowed to leave it free of IHT to your heirs. Yes, you can turn up your toes while still counting your benefits.

    Isn't the English taxpayer wonderful?

    19:17 on 20 June 2018

Please use a browser with javascript enabled in order to post a comment

Mobile | Desktop