Two-fifths of retirees said they have not managed their pension well, as three-quarters of those in their late 50s and early 60s have already taken a lump sum, many while still earning, new research by AJ Bell has found.

The firm said the survey rings alarm bells over how people take their lump sum and what they spend it on, as most opt for home improvements and holidays over pension income.  

The Opinium poll for investment firm AJ Bell surveyed 1,000 retirees in the summer of this year. Worryingly, nearly the same proportion of retirees said they had not managed their pension well (38%) as felt they had managed it well (41%). 

While the study did not ask for the reasons, it found that a large proportion (76%) of those aged 55 to 64 had already taken their tax-free lump sum. Nearly a quarter of those no longer working said they were still earning when they took the first payment from their pension.

The research also found that most of those who took a pension commencement lump sum have used the money, with just 30% using the first pension payment to cover living costs. Home improvements topped the list of where retirees spent their tax-free cash (26%), followed by going on holiday (21%). About a fifth (19%) paid off debt, and 16% bought a new car. 

Some fear those aged 55-plus may be accessing their pension cash because of rumours, in the annual run-up to Budget day, that the 25% tax-free portion would be reduced or scrapped entirely. Based on 2025-26 data by the Financial Conduct Authority, AJ Bell believes that savers took an estimated £14bn more from their pension than they would have done without this speculation. 

“It constitutes a horrible pensions raid which could seriously damage retirement incomes," said head of personal finance Sarah Coles. "The Pensions Commission found that 14.6m people aren’t saving enough for retirement, but that this rises by 2m if people take their tax-free cash and spend it."  

The firm has called on chancellor John Healey, who is set to deliver his first Budget on 28 October, to commit to a 'pension tax lock' to avoid tax uncertainty prompting decisions that could harm retirement outcomes.  

“The fact that almost as many people say they have managed their pot badly as say they have managed it well is a worrying sign that people are making decisions with their lump sum, and pension withdrawals in general, that they come to regret later," said Coles.  

With most young retirees already having taken their tax-free lump sum, AJ Bell warns that while it can make sense, doing so restricts the total that can be taken tax-free and hampers the future growth of a defined contribution pension pot. In addition, if the money is not spent but invested outside of a pension wrapper, there are tax implications, while holding it in cash reduces the growth potential.