The new study from Sanlam in partnership with OnePoll, 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 (33%) 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 raided by tax charges.
Alex Morley, CEO, Sanlam Wealth Planning, said:
“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 emphasises 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 (30%) 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.
Despite much negative coverage, a further third (30%) of people thought annuities were the best route for people’s retirement savings:
The research also found that couples believe the pension freedom makes them better off. Nearly half (48%) of married couples said they support the changes allowing more freedom to take their pension as cash.
However couples should be cautious when making the decision to take a lump sum without thinking of the long term implications for their future.
Alex Morley added:
“Rather than taking rash decisions right now, couples should be taking more consideration for the future and the fact that the average life expectancy is higher than individuals. The raft of changes that will come into force on 6th April means more people will seek advice from financial planners to help make crucial long-term saving decisions. These factors means more people will want to work with their advisors to discuss accumulation vs. decumulation come retirement.”
