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Zopa research finds over-55s could drive economic recovery

Britain’s older savers could be a significant driving force behind the country’s economic recovery. This is according to new research carried out by Zopa, which has found that new pension rules introduced in April mean thousands of the UK’s over-55s have cashed in part or all of their funds.

As a result, the disposable income available to this group has soared and is making a significant contribution to higher consumer spending.

More people are accessing their pensions early

Zopa found that almost a third of over-55s had already accessed their pensions, with £36,500 the typical amount taken. April’s change in legislation has made it significantly simpler for anyone aged 55 or above to withdraw money directly from their pensions without facing the punitive tax charges which used to apply.

There has been a simultaneous sharp decline in the number of annuities bought – prior to this year, annuities were the most common way of turning pension savings into income in later life, and for many savers they were the only realistic option.

But over recent years, poor returns and the fact that annuity contracts are generally irreversible put significant pressure on ministers to reform the pension system, with this year’s changes the result.

Zopa’s research revealed that the most common reason for cashing in part or all of a pension was to increase disposable income, with 30% citing this as their main incentive.

Just over a quarter said they wanted the money to pay for travel, while one in five planned to use the cash to make home improvements. Freedom from mortgage commitments is likely to be the main reason that those aged between 65 and 69 had a greater level of disposable income – 27% — than any other age group.

Over-55s are a key Zopa demographic

While this year’s law changes have clearly increased the availability of money to the over-55s, they have long been one of the most significant sources of funds on the Zopa platform.

Giles Andrews, co-founder and CEO of Zopa, said: “The ‘silver pound’ has never been stronger. 57% of the £1bn lent by Zopa over the past decade has come from over-55s, a clear sign that P2P is fast becoming a mainstream for people looking for income or to grow their pension pot.

“Savvy consumers in this age group have greater freedom to use their disposable income with many looking for a reliable, predictable and low-risk return to generate an income from their pension funds.”

Pension reform and peer-to-peer lending

Zopa also surveyed its own lenders to see how they were likely to use their pension cash. Almost a third of over-55s said they intended to increase the amount of money they lent peer-to-peer, while two-thirds said they would rather use P2P lending to grow their money than buy an annuity.

Greater pension flexibility isn’t the only reason that Zopa customers expect to lend more money: the introduction of the Innovative Finance ISA in April 2016 will significantly cut potential tax bills for P2P lenders. As such, 75% plan to lend more when the new ISA is launched.