Britain’s over 50s are using the extra income they enjoy after paying off their mortgages to fund holidays, home improvements and gifts for their children. Fewer than one in four use the extra money to top up their retirement savings, says new research.

Saga Investment Services looked into what the over-50s did once they had paid off their mortgage. It found that 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. Some 40% spent the money on holidays, while 27% bought a new car.

The survey also uncovered the gap between paying off a mortgage and retirement. 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. However, topping up pensions was low on the list of priorities.

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

Saga Investment Services said that if they 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.

The company also surveyed homeowners still repaying their mortgage. They reported an average gap of three years between paying off their mortgage and retiring, generating an additional monthly income of £428. Using the same calculation methodology, Saga’s figures suggested that they could build up almost £21,000 by placing all of this into a pension.

Nici Audhlam-Gardiner, managing director at Saga Investment Services, said: “In our survey, a third of people said they were able to retire earlier than planned because they’d made the effort to put their extra income into their pension, while 44% said they have ended up with a higher retirement income than they originally expected.”

“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.”

Populus, on behalf of Saga, surveyed 989 homeowners aged 50+ between 20 and 22 May 2016.

Saga Investment Services is the investment and Financial Planning arm of later life provider Saga. It is a joint venture between Saga and Tilney Bestinvest.