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Majority of over 55s are oblivious to a tax bombshell when reaching for their pension pots


Nearly nine in 10 (85%) of over 55s are unaware they will face an income tax bill when taking out a cash lump sum under the new pension freedom rules introduced by the Government, according to new research from Sanlam in partnership with OnePoll.

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, one important element of accessing  your pension monies that has not changed with the new rules.  

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. 

Many consumers will feel annoyed learning that, having paid high tax bills throughout their working lives, 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 to seek professional advice of wealth 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 services such as the Governments newly established ‘Pension Wise’ guidance service and financial 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.

Couples believe they’re better off with reforms

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.

Data collated by the University of Birmingham on behalf of Sanlam, revealed that life expectancy of couples is longer than individuals. This showed a one in two chance that one or other of a couple will be alive at age 95. In addition, there is a one in four chance that one or another couple will be alive at age 100.

Rather than making rash decisions right now, couples should be taking more consideration for the future and the fact that the average life expectancy is higher than for individuals.

The raft of changes that came into force on the 6th April means more people may need to seek advice from wealth planners to help make crucial long-term savings decisions.

To find out more about investing into an ISA get in touch with your financial adviser, if you don't have one please get in touch, we will be happy to help letstalk@sanlam.co.uk

Date issued: 23.04.15

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependant upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.