Prudential highlights retirement pension overspend

Wed, 01 Feb 2006

Prudential UK has identified a trend among retirees, which it calls the 'pensioner splurge'.

The life and pensions company says this phenomenon is when pensioners overspend in the first year of their retirement pension.

Almost half of the people in retirement that were polled by Prudential said they struggled to adjust to living on their retirement pension income in the first year after they retired.

A quarter admitted to overspending in the first year of their retirement pension, with almost one in ten doing so by a significant amount.

Of those who overspent in their first 12 months of their retirement pension, half did so by between £1,000 and £5,000.

A further 15 per cent went more than £10,000 over the limit with four per cent claiming they exceeded their budgets by £30,000 or more. Two per cent admitted to splurging over £50,000 in this period.

This overindulgence was funded by a credit card in almost half of the cases, Prudential found. Almost a fifth of those in retirement pension relied on a personal loan, while seven per cent opted for remortgaging property.

"If a pensioner spends too much in the first year and does not have enough aside for the rest of their retirement, they could be left short later on," warns Trevor Mitchell, the head of retirement income at the life and pensions company.

He says one way of avoiding this is to purchase an annuity, as it gives lifelong income that can increase.

"With-profits annuities are particularly attractive as they can provide a regular income today, with the opportunity of increasing income in the future," Mr Mitchell says.

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