Almost two thirds of over 55s are unaware of the “significant tax implications” of the new pension flexibilities coming into effect as of next month, a new survey found.
According to a poll carried out by deVere Group – one of the world’s leading independent financial advisory firms – 64% of those surveyed did not realise, for instance, that only the first 25% will be tax-free if pensions are accessed earlier than previously allowed. Other withdrawals will be subject to the pension holder’s highest marginal income tax rate.
“The countdown is on to Pension Freedoms Day, yet the majority of the over 55s surveyed did not realise the serious, significant tax implications of accessing their pensions earlier than had previously been allowed,” Nigel Green, deVere Group’s founder and chief executive, observed. “People need to be aware that there is a considerable price tag attached to the government’s new freedoms.”
Mr Green explained that persons could have to pay a tax of 20, 40, or even 45% for the privilege of accessing their retirement savings whilst there is also a risk that taking the larger sums could push one into a higher tax bracket.
“To my mind, the findings of this poll highlight that the government has not done enough to educate and inform individuals about the real implications of this radical overhaul of Britain’s pension landscape.”
“It does rather feel that it has all been rushed through to hit an election deadline,” Mr Green said. “And whilst I’m sure that there are many talented people working on the government’s Pension Wise initiative – the scheme set-up to help people understand the changes – the 30-minutes of generic, one-size-fits-all guidance that is offered cannot be the same as professional independent financial advice.”
Last August, deVere Group revealed that one third of their clients had “actively enquired” about accessing their pension pots from this April. However, when they were advised on the true implications of accessing their pensions, the vast majority, “around 95 per cent”, rejected the notion in favour of a more traditional drawdown method.