Not enough people understand pensions and will have a shock in retirement when they realise they will have to pay tax on their savings.
More than a quarter of over 55s believe their pension savings are tax-free if they take them as cash, according to a new survey.
Pension provider Legal & General quizzed 2,000 over 55s about their pension knowledge and was astonished by the results.
The research – a report called The Price of Freedom – found 27% thought no tax was payable on their pension withdrawals and another 21% were ‘shocked’ to find this out.
Many had planned to spend the money they will pay as tax, with 37% of over 55s not understanding only 25% of their pension fund could be taken tax-free.
Savings 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,” said Emma Byron, managing director of Legal & General Retail Retirement Income.
“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.”
The report has also revealed that a quarter of pension savers had no idea what would qualify s a good rate of return on investing their cash and 58% of over 55s had yet to research their pension options despite retirement looming.
Spend more time on pensions
“The flipside of the flexibility offered by pension reform, is that we are all now responsible for making sure our pension pots will last through our retirement,” said Byron.
“As a nation, we are not spending enough time thinking about this, and about how we want to use our pension. This is true both before, and in, retirement. Planning retirement is a challenge, but it is important.
“We need to spend time on this vital task, or we run the risk of not having enough money to last or our investments not giving us the return we want.”