30th March 2015
Just 13% of those aged over 55 are intending to withdraw cash from their pension above the 25% tax-free allowance according to research from MGM Advantage.
With just a week to go before the new rules go live, the retirement specialist has warned the temptation of cash lump sums puts up to 50,000 people at risk of falling into a ‘tax trance’ after 6 April.
The analysis reveals that 60% of respondents will not take advantage of the new freedoms and cash in their pension pots, with a further 27% undecided. Those over 55s who were not intending to make use of the freedoms, at some 40% of respondents, said they either did not need the money now. Just under a third, at 29%, said they wanted to keep their pension invested and draw from it when needed.
Andrew Tully, pensions technical director at MGM Advantage, said: “The new freedoms have opened up many more options for those approaching retirement, but just because those options are available, it doesn’t mean taking them up is necessarily an attractive option or the right thing to do.”
Tax issues however remain a real concern for some retirees, with 16% of those not taking cash above the tax free limit citing the desire not to pay extra tax when drawing money. The analysis also found that 19% of people not taking the cash above the tax free limit stated that, instead of taking all their money in cash, they would look to secure a lifetime income with their pension savings.
Tully added: “Although the majority of people appear to be taking a measured approach, just over one in eight will take their money and run. Given the number of people in the UK retiring each year, that could equate to over 50,000 people. Depending on their circumstance, those opting to take the cash could easily find themselves paying significant amounts of tax. These people should be wary of falling into a state of ‘tax trance’; transfixed by the prospect of a lump sum of cash and either untroubled by the prospect of paying more tax or unaware of the tax bills they’ll face in doing so.”