Over-55s to fuel spending boom on kitchens and cars from pension reforms

Every year 320,000 people will newly qualify for this right to withdraw their pensions.

Hymans Robertson forecast that £3billion of the £5billion will be spent on luxuries such as new kitchens, conservatories and cars, boosting the UK’s total spending by 0.6 per cent in 2015.

This could in turn increase Britain’s gross domestic product from 2.3 per cent to 2.9 per cent.

Chris Noon, a partner from the firm, said: “There will be an impact on spending and it will be noticeable.”

Adam Boulding, from the insurer Legal & General, added: “For many people, their pension pots will be, perhaps, £20,000 to £40,000.

“If they try to get an income out of that, it will buy only the very smallest annuity. Instead they could spend the money on making a real difference to their lifestyles.

“They may fancy a new conservatory on the back of the house, or be desperate for a new kitchen, or the car may be on its last legs.”

It emerged last month that the sums that can be withdrawn are not as large as previously thought, because pension companies could levy charges to people looking to withdraw their cash early.

There is speculation now that the spending boom, which could start in April, will provide a surprise boost to the economy in the weeks before the May 7, 2015 general election.

New figures last week showed a near collapse in sales of annuities which suggest that a large number of the over-55s will be looking to cash in their pensions.

They showed that annuity sales fell from 74,270 in the first quarter to 46,368 in the second quarter.

The spending boom could also boost VAT receipts for the Chancellor, experts suggested. The Treasury currently estimates that the changes will bring in an extra £3billion over the next five years.

In Australia – where savers are allowed to cash in their pensions early – figures show that one in three people who withdrew their cash early spent it on home improvements, The Sunday Times reported.

more