Nearly 40% of over 55s (38%) have no plan in place for the tax-free cash they can get from their pension.
A cash ISA was the most popular choice at 17%, according to new research from Hargreaves Lansdown.
Home renovations also proved popular while celebrating retirement with a holiday was another top choice.
Less than a fifth, 16%, said they would use it to supplement their retirement income but only one in 10, 10%, said they would invest it.
A similar 14% said they would put it in cash savings, while 7% said they would just leave it in a current account.
Less than one in 10, only 8% of respondents, said they would invest it by putting it in a stocks and shares ISA, while another 2% said they would invest it outside an ISA.
Taking the money all at once is tempting, but failure to have a considered plan can mean putting money at risk, warned Helen Morrissey, head of retirement analysis, Hargreaves Lansdown.
She said: “The ability to take up to 25% of a pension tax free is a huge plus point but people need to have a plan for what they want to do with it.”
She said investing it in a stocks and shares ISA can be a good approach for people who don’t need the money straightaway. It enables people to benefit from investment growth while sheltering their money from capital gains and dividend tax.
She said a stocks and shares ISA can also be attractive because income can be taken tax free and anything within an ISA can be transferred into a surviving spouse’s ISA if the holder passes away. That means the investments continue to remain exempt from tax.
She pointed out that the additional permitted subscription expands the surviving spouse’s allowance by the total value of the deceased’s spouse’s ISA –is on top of the typical £20,000 annual allowance. “That can provide a loved one with a tax-free income source in retirement.”
Almost one in ten (8%) people said they would use the money to gift to family. That may have been prompted by unused defined contribution pensions becoming part of people’s estates for inheritance tax purposes from April 2027, said Ms Morrissey.
• Survey of 500 people aged over 55 conducted by Opinium, on behalf of HL in June.