Pension changes: 'quarter of a billion spent on cars and holidays'

Around 60,000 people have taken advantage of the government's new pensions system since April

Holidaymakers on Ngapali Beach, Myanmar
(Image credit: Getty)

More than a quarter of the one billion pounds withdrawn from pension pots under new government rules is likely to have been spent on holidays and cars, according to The Times.

Chancellor George Osborne announced this week that 60,000 people had taken advantage of the new system since it was introduced in April.

Over-55s now have the freedom to withdraw a tax-free lump sum from their pension pots; use their savings to purchase an annuity; or even withdraw their entire pension in cash subject to tax.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

"More than £1bn has been transferred out of people's pension funds as a result," said Osborne. "It is a sign that this is a real success."

Research by Ipsos Mori suggests around ten per cent of this figure will have been spent on cars and nearly 20 per cent on holidays, equating to around £286m over two months, says The Times.

Another quarter of a billion has been "ploughed into the property market or home improvements", says the newspaper, while just a third of the money is likely to have been spent on day-to-day living expenses.

Some experts appeared to disagree with the Chancellor that the amount of money withdrawn since April was a logical way to judge the success of the scheme.

Adrian Walker, a retirement planning manager at Old Mutual Wealth, said: "I would suggest that a more appropriate measure of success will not come for many years, when those people who have withdrawn money from their pensions are still enjoying the retirement they planned and saved many years for."

Last year, Steve Webb, the Liberal Democrat pensions minister at the time, said he was relaxed about how people spent their pension pots. "If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice," he said.

To find out more about investment themes and how to get started with your portfolio, check out Alliance Trust's Investment Focus, which offers insight and knowledge into all areas of investment.

Remember that the value of your investments can go down as well as up and you may get back less than you originally invested. Alliance Trust does not give advice. You need to ensure that you understand the risks and the commitments before investing. If you are unsure, do consult a financial adviser