Over 50% of People Saving for Retirement are Confused about the new Pension Freedom Tax Rules.
Pension Freedom is certainly a revolution in Pensions in the UK, but inevitably, perhaps, there are areas of uncertainty that require clarification, and one of these areas are the new tax rules associated with Pension Freedom.
We are aware of a study undertaken by Portcus, the employee benefits consultancy, which revealed that over 50% of those surveyed who were saving for retirement were confused about what the tax rules are when it comes to Pension Freedom.
Perhaps this is not surprising when one also bears in mind that the understanding of tax when related to pensions has some worrying elements to it. For example, 5% of people believe that all pension funds are tax free, whilst 6% believe (wrongly) that up to 25% of the money in a pension pot can be withdrawn can be withdrawn tax-free every year. In addition, only 26 per cent of those saving for retirement were aware that they can take a quarter of their pension fund tax-free, whilst the rest of their pension fund is potentially subject to tax at their marginal rate.
Put simply, the new pension freedom rules mean that over-55s are able to access their pension pots without purchasing an annuity. And yet, of people aged 55 or older, only 54% were aware that they could take a tax free lump sum with the rest of the pot being subject to tax, whilst 31% admitted to not knowing what the tax implications were.
Even more worryingly in light of this research, the Work and Pensions Committee are concerned that the very government service set up to give impartial advice about pensions, Pension Wise, was “not fit for service”.
We can advise and help on Pension Freedom matters
So what does all this mean? Clearly Pension Freedoms, as we comment in our Bulletin 60, mean that people now have……
“The freedom to invest or divest a pension fund, nurture it or plunder it, exhaust it in a joyful pursuit of pleasure or preserve it and assume the role of patriarch of a potentially enduring family pension trust.”
However, as the Portus research has shown, more needs to be done to educate people about the changes, especially the tax implications. At Pensions Management Limited, we specialise in advice on pensions, in particular to owners/directors of businesses, so if you need some help understanding Pension Freedom, contact us or call us on 0121 693 0690 for a free initial chat.