Many retirees could empty their pension pots by their late 70s - leaving nine years of retirement unfunded, a major pension provider has warned.

Research among 3,000 over-50s by Legal & General highlights that based on current spending rates, many retirees will run out of money nearly 10 years before their typical life expectancy.

People generally expect their pension pot to last 22 years from age 60.

But L&G's analysis of new research found that for those who may not have other sources of income, such as property wealth, or a defined benefit pension, pensions typically runs out by age 77, falling short of the average life expectancy of 86.

L&G says the so-called ‘Lottery Effect’ is encouraging some retirees to make "impulsive financial decisions" once they get their hands on tax free cash, which many view as a windfall.

One in seven retirees (14%) say they have regrets about how much of their pension they have already spent while 58% sought no formal guidance before taking their pension.

L&G has launched a new Guided Retirement Planner service to try to help workplace pension members over 55 make better financial decisions.

The company says too many retirees are at risk of emptying their pension pots a decade early by taking out large cash lump sums or withdrawing too much in monthly income.

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 says.

The majority (58%) of those surveyed by L&G accessed their pension without seeking any formal advice or guidance from their pension provider, an adviser or from support services like MoneyHelper. Among those with spending regrets, one in 10 (11%) said they did not fully understand the impact of their decisions.

L&G says easy access to pension pots is triggering, “a psychological rush which can spark impulsive or unsustainable spending – similar to winning the lottery.”

One in seven retirees (15%) said they felt like the cash lump sum from their pension was an “unexpected financial bonus”, rather than part of their long-term savings plan. A further one in 10 (10%) said it felt like a payday, and they wanted to spend it.

Over a fifth (22%) said they took out a cash lump sum, or would consider doing so, because they wanted to put it into a current account or cash ISA to keep for a rainy day. Almost half (46%) said they accessed the cash simply because they could, just to have it to hand.  However L&G warned this could leave some people facing unexpected tax bills or losing entitlement to means-tested benefits, such as universal and pensions credit, in addition to missing out on the potential rewards of keeping their pension invested.

The 2024 Autumn Budget announcement that from 6 April 2027 unused pension savings may be subject to inheritance tax (IHT). This factor may also spur more people to pull money out of their pensions to avoid IHT, L&G said.

L&G’s research found that on average, people have £87,500 in their retirement pot before they start accessing it. A third (32%) of people will take a cash lump sum once they are eligible to do so, on average at age 60. Those that access cash from their pension typically take out 25% of their pot – the maximum allowance that people can access tax-free – and typically take an average income of £875 per month once they reach state pension age.

People generally expect their pension pot to last 22 years from age 60. But L&G's analysis shows that for those who may not have other sources of income, such as property wealth, or a defined benefit pension, it typically runs out by age 77, falling short of the average life expectancy of 86.

Katharine Photiou, managing director workplace savings at L&G, 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 IHT from 2027, it could add to people withdrawing from their pots in an unsustainable way.”

• Research was conducted, on behalf of Legal & General, by Opinium between 3-9 December, among 3,000 UK over 50s.