New pensions flexibility – but watch out for the taxman

Staff at Bingham-Woods independent financial advisors, Spalding. Photo by Tim Wilson.
Staff at Bingham-Woods independent financial advisors, Spalding. Photo by Tim Wilson.
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According to an Ipsos Mori poll, about 12 per cent of people able to make use of new pension freedoms plan to cash their entire pension pot in one go.

From April 2015, anyone over 55 can withdraw their pension pot, with 25 per cent of it coming as a tax-free lump sum and the remaining 75 per cent taxed at the highest marginal rate.
Investment firm Hargreaves Lansdown, who commissioned the poll, estimates that £1.6 billion of income tax revenues will be generated by people withdrawing their pension funds and then being taxed at the marginal rate. 
The poll asked adults aged 45-65 in what ways they planned to use their pension freedoms.
Of those that said they would, 23 per cent would save their pension fund, 22 per cent would live off it and 21 per cent would use some to fund a holiday.
Property investment also came high on the list with 16 per cent support, while 13 per cent planned to use their pension to pay off debts. 
However, only 4 per cent planned to reinvest the pension cash into ISAs.
Tom McPhail, head of pension research at Hargreaves Lansdown, said: “The Chancellor has effectively engineered a tax windfall for the government from unsuspecting pension investors.
“There is an urgent need for the Government to think again about how to effectively regulate these new freedoms. 
“We want investors to take responsibility for and to engage with their savings, but we don’t want them paying unnecessary tax bills or running out of money.” 
In his 2014 Budget, Chancellor George Osborne announced that “no one will have to buy an annuity”, ushering in a raft of reforms which make it possible to withdraw pension funds and only be taxed at the marginal rate of income tax, rather than a possible 55 per cent tax rate.

Money Matters by Scott Woods.

Money Matters by Scott Woods.