More than one in four (27%) of over-55s do not know they have to pay tax on their pension savings if they take the amount as cash, research from Legal & General (L&G) has found.
The firm’s Price of Freedom study, which surveyed more than 2,000 over-55-year-olds, also showed that 21% of people would be “shocked” to have to pay tax on their pension, while 37% who expect to get their savings tax-free think that they wouldn’t have to pay any tax on a lump sum greater than the 25% threshold.
However, a greater percentage are less prone to invest their pension pots due to risk. According to L&G, 46% would not take any risks with their pension, while 73% would avoid “big risks”.
Concerns were also raised over the fact 32% of respondents said it took them less than a week to decide where to invest their money, while recent figures from the Financial Conduct Authority claimed that a third of over-55-year-old investors did not know where their pension pots had been invested.
Retirement poverty
Emma Byron, managing director at Legal & General Retail Retirement Income, said: “None of us spend as much time as we should thinking about pensions and retirement planning. But leaving important decisions about later life to the last minute could potentially leave you poorer in retirement.
“It might even put the hard-earned pension pot you’ve built up during your working life at risk. Many customers don’t know about some of the fundamental factors that can impact how much money we have in retirement. Tax is one of these.
“Making retirement planning easier to understand and supporting consumers with good advice is crucial. The guidance and information people use needs to be clear and jargon-free, and we must engage customers more and encourage them to take financial advice.”
The latest figures from HM Revenue & Customs showed a decline in people approaching retirement taking advantage of the pension freedom scheme. But experts are worried about the level of education advisers have received regarding the strategy.
