Interactive Investor

Fall in age retirees start taking income by four years to 62

Alice Guy examines data 10 years after the introduction of pension freedoms.

28th March 2024 11:04

Alice Guy from interactive investor

  • Data from interactive investor customers shows the average age to take first regular pension income has dropped by four years, from 66 to 62 since before the pandemic 
  • The average to take a tax-free lump sum from pension has remained steadier but is also lower than before the pandemic, dropping from 62 to 61 
  • A large portion of people are taking their tax-free lump sum from their pension to put it in the bank, a savings account or a cash ISA

March marked a decade since the government announced a suite of measures which resulted in a dramatic shift in the retirement landscape, known as a pension freedoms.

10 years on, new analysis by interactive investor, the UK’s second largest direct-to-consumer investment platform for private investors, suggests pensioners are making the most of the greater flexibility on how to access and manage their retirement nest egg. 

Before the pandemic, in the period from 2018 to 2019, the average age for an ii customer to take their first regular pension income was 66. However, that age shifted to 63 between 2020 and 2021. It has dropped further still to 62 in 2022 and 2023. 

Not only are ii customers taking regular pension income much earlier, but they are also taking their slightly tax-free lump sum earlier, at 61 rather than 62 on average.

In 2018 and 2019, ii customers took their first tax-free lump four years before beginning to take regular pension income, taking their lump sum at 62 versus taking pension income at age 66. But they now take a tax-free lump sum just one-year before beginning to draw pension income on average, taking their lump sum at 61 versus taking pension income at age 62.

Interactive investor customer drawdown data

Men

Women

Total

Average age of those first taking tax free lump sum

Jan 2018 – Dec 2019

62

61

62

Jan 2020 – Dec 2021

61

60

60

Jan 2022 – Dec 2023

61

60

61

Average age of those first taking regular pension income

Jan 2018 – Dec 2019

66

65

66

Jan 2020 – Dec 2021

63

63

63

Jan 2022 – Dec 2023

63

62

62

How people spend their pension lump sums

interactive investor’s Great British Retirement Survey 2023 shows how people are spending their tax-free lump sum.* 

The majority of the nationally representative sample use at least some of their lump sum to increase their cash buffer or reduce their debt burden. Two-fifths (39%) reported putting their tax-free lump sum in a bank or savings account, while one-fifth (19%) transferred the lump sum into a cash ISA. A quarter (25%) say they used it to repay debts or their mortgage.

A quarter said their lump sum went to either day-to-day living costs (12%), helping their children (12%) or grandchildren (3%).

A good portion of those who took their lump sum reinvested the money in another way, for example by putting it in Premium Bonds (11%), investing in a stocks and shares ISA (8%), investing in property (6%), or investing in the stock market another way (2%).

In contrast, the interactive investor community are spending their tax-free lump sum very differently on average, with a massive 46% reinvesting it in a stocks and shares ISA and a further 27% investing in the stock market in another way.

What did you do with your tax-free lump sum?

Nationally representative sample

interactive investor sample

Put it in bank or savings account

39%

24%

Repaid debts/ mortgage

25%

16%

Put in cash ISA

19%

13%

Helped my child/ children

12%

18%

Spent on day to day living costs

12%

12%

Put it in stocks and shares ISA

8%

46%

Spent on luxury experience

7%

11%

Invested in the stock market another way

3%

27%

Source: 2023 Great British Retirement Survey, nationally representative sample of 5,000 and interactive investor sample of 4,000 ii customers and website users, conducted by Opinium between May – July 2023.

Alice Guy, Head of Pensions and Savings at interactive investor, says: “Ten years ago, George Osborne ripped up the rule book on pensions and announced wide-reaching changes, allowing more freedom about how and when to withdraw pension income.

“A decade on, people with private pension wealth are making the most of those freedoms and drawing a pension income ever earlier. Having private pension wealth offers people more financial freedom, allowing them to retire earlier or drop to part-time work and supplement their income with their private pension.

“Since the pandemic, people are starting to take regular income from their pensions earlier and earlier. The lockdowns gave many people a glimpse of life beyond work and caused them to reassess their work/life balance. Many of those with private pension wealth are voting with their feet and choosing a life of freedom away from the daily grind.

“The state pension age may be rising, but the reality is that most people don’t want to keep on working until their late 60s if they can absolutely help it. Many are prepared to tighten their belts and accept a modest lifestyle in exchange for the freedom retirement brings. Others have no choice but to retire early due to health problems or caring responsibilities.

“When it comes to using their tax-free lump sum, most people are making practical and cautious choices. A huge portion of people appear to be using their tax-free lump sum to increase their savings, with three-fifths of people beefing up their bank, savings account or cash ISAs. Just 7% of people from our nationally representative survey said they were spending that pot of cash on luxury items or experiences – I don’t think we’re noticing a significant increase of sportscars on the road.

“In contrast, interactive investor customers often choose to reinvest their tax-free lump sum in either a stocks and shares ISA or another investment vehicle. With many of us living for more than 20 years in retirement, keeping your wealth invested makes it easier to beat inflation over time. Stocks and shares tend to significantly beat cash returns in the long run and so it can make sense to remain invested in retirement, as part of a balanced portfolio.

“Taking a tax-free lump sum or a regular income from your pension is a big decision and needs to be weighed up carefully. Removing wealth from your pension means it’s no longer protected from capital gains tax or inheritance tax and you or your family could end up with a bigger tax bill down the line. And withdrawing too much from your pension early on could mean that you struggle to make your pension pot last the distance.”

Notes to Editors  

*Survey carried out by Opinium Research between May July 2023 - total sample of 9,000, including nationally representative sample of approx 5,000 adults with remainder from interactive investor customers and website users.  

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