Retirees could be at risk of spending their pension pots by their late 70s, as a result of a "lottery effect", Legal & General (L&G) has stated.

The firm has found that on current spending rates, many retirees could empty their pension pots by their late 70s.

With the average life expectancy of a current 60-year-old in the UK sitting at 86, some retirees could be left with a nine-year shortfall between their retirement funds running out and the end of their life.

L&G stated that this could be because of the lottery effect, where overnight access to large sums of money can lead to impulsive financial decisions.

In a survey, the firm found that one in seven (15%) people said they felt they felt like the cash lump sum from their pension was an "unexpected financial bonus", rather than as part of their long-term savings plan. A further 10% said it felt like a payday and they wanted to spend it.

Almost a quarter (22%) said they took a cash lump sum and would consider doing so because they wanted to put it into a current account or cash ISA to keep for a rainy day, while 46% said they accessed the cash "simply because they could".

Managing director for workplace savings at L&G, Katharine Photiou, said: "For most people, their pension pot is the largest sum of money they’ll have access to, and after decades of hard work and saving, it’s natural to view it as a well-deserved reward. As we know, many people do sit on their savings and will have enough to last through the years they are retired.

"However, our research shows the sudden financial freedom can trigger the 'lottery effect’ for some savers, which can lead to unsustainable spending. On top of this, with unused pension savings also subject to inheritance tax from 2027, it could add to people withdrawing from their pots in an unsustainable way."

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