Britain’s over 50s splash the cash once they’ve paid off their mortgages, spending on holidays, home improvements and gifts for their children, according to research from Saga Investment Services.

But less than one in four use the extra income to top up their retirement savings.

Income boost

Over 50s who own their home outright reported an average monthly income increase of £322. Asked how they used the money once their mortgage had been repaid, half put some of the money into a savings account, while 45% paid out for home improvements. A significant 40% spent the money on holidays, while 27% bought a new car.

The average retirement age for those surveyed was 62, and this group paid off their mortgage at an average age of 55 – a seven year period of mortgage-free income.

Pensions a low priority

Fewer than one in four (23%) diverted the mortgage repayment ‘pay rise’ into their pension. Of those that did, an average of 40% of their additional income was put into their pension.

Calculations carried out by Saga Investment Services show that if homeowners had diverted 100% of their monthly mortgage repayments into a pension until their retirement age, attracting basic-rate tax relief, a homeowner could have saved an additional £40,000 towards their retirement.

Nici Audhlam-Gardiner, managing director at Saga Investment Services, said: “Repaying a mortgage is one of life’s biggest financial achievements, and it’s understandable that people want to enjoy the income boost that they’re finally getting after decades of debt repayments.

“But this often comes when there’s limited time to build up as big a nest-egg as possible for retirement. Making the most of your finances in the run up to retirement is vital to ensure you have a comfortable life once work is over. Professional financial advice for people at this age can help formulate a plan to get the income they need. That’s why it’s good to see the government backing greater access to advice by giving people early access to their pension to pay for the help they need.”