More than one in four (27 per cent) people aged over 55 do not realise that they have to pay tax on pensions savings if they take the money as cash, according to new research from Legal & General (L&G).
L&G’s report, Price of Freedom, highlighted that this could potentially lead to them facing higher tax bills than they had prepared for.
It also found that 21 per cent of over-55s would be “shocked” at having to pay tax on their pension savings.
Furthermore, 37 per cent of those 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 per cent threshold.
L&G Retail and Retirement Income managing director, Emma Byron commented: “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.”
L&G’s research also revealed that individuals do not want to accept risk on their pension savings, as over three-quarters of those surveyed saying they would not take up an investment in later life that would double their returns and the risk.
Additionally, 46 per cent said that they wouldn’t take any risk with their pension pot and 73 per cent would avoid any “big risks” to their pension.
Although people are adverse to risk in relation to their savings, recent figures from the Financial Conduct Authority found that a third of people investing their pension funds do not know where their money is being invested.
Byron concluded: “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. Conversations need to be about retirement goals and plans, not about products.
“If we as an industry can do this, improving the way we communicate with customers and providing them with the support they need to make informed decisions, then people across the UK will be in a much better place to enjoy a more prosperous retirement.”