Over 55’s oblivious to tax bombshell when withdrawing cash from their pension pots

2 Apr, 2015

Nearly nine in 10 of over 55’s are unaware they will face an income tax bill when taking out a cash lump sum under the new pension freedom rules being introduced by the Government, according to new research from Sanlam Wealth Planning..

The new study, which questioned 2,000 people over the age of 55 across the UK, found that 85% thought the Government had failed to communicate sufficiently that they will incur income tax on 75% of their pension by withdrawing their pot for cash from 6th April, just as they will do if purchasing an annuity or by using a flexible drawdown scheme.

Despite much confusion, appetite to take out a lump sum is high. One in three people said they planned to take advantage of the new rules and take out considerable sums, not knowing about the tax they will pay. The figures suggest that millions of people across the UK are opting to exercise the new rules, unaware that the pension funds they have built up over many years of hard work will be subject to tax charges.

Alex Morley, CEO, Sanlam Wealth Planning: “The majority of consumers feel annoyed of having paid high tax bills throughout their working lives and appear to be unaware that taking out a cash lump sum from their pension pot could leave them with less than expected in their pocket.

“This lack of awareness underlines the need for consumers to seek professional advice of financial planners who can support people in setting their objectives for retirement and planning on how they can get there.”

When made aware of the new rules and implications of high tax bills, retirees were asked what actions they would take in regards to their pension. One in three  said they did not know what they will do when new freedoms come into force, highlighting the importance of guidance services and advice in helping people understand their choices.