Retirement adviser LEBC has again called on the government to introduce a 30-day cooling off period for individuals who seek access to more than the tax-free part of their pensions without the benefit of regulated advice.
The company has said it wants those who do not take advice before accessing their pensions to be given a clear warning about the tax due on their savings and the restrictions that will apply to any future tax-exempt pension savings.
At present, any withdrawal over the tax free 25 per cent of the fund is taxed as though it is a monthly payment and emergency tax has to be deducted from the payment.
LEBC says that this can result in the taxpayer over paying tax and while this can be claimed back, it substantially reduces the funds immediately available to individuals.
Taking withdrawals in excess of the 25 per cent threshold also restricts a saver’s ability to continue saving in a pension, including receiving contributions from an employer as savings with the benefit of tax relief are restricted to £4,000 per year with any amount over this taxed as income.
LEBC’s renewed appeal follows an announcement made by HMRC in which it stated that it will not be changing the way that one off withdrawals from pension schemes are taxed under the pension freedoms regime.
LEBC director of policy Kay Ingram suggested that a simple statement and cooling off period would enable people to decide whether they want to pay a large tax bill and are willing to forego future pension savings.
“The current system means that many without the benefit of professional advice are presented with a large unexpected tax bill and restrictions on building their pension savings in the future,” she said.
“These rules can severely reduce their retirement savings and a warning of this before it is too late is only fair. Timing the withdrawals differently could result in a better outcome for the consumer.”