Tens of thousands of hands retiring this year to be hit by shock tax bills
Under the pension liberations reforms, most savers over the age of 55 are entitled to take some or all of their benefit savings in the form of a cash lump sum, with the first 25 per cent being tax-free.
But on the verge of one in five (123, 500) of the 650,000 people about to dip into their spare tyres are planning to withdraw more money than the tax-free limit, originate insurance giant Prudential.
This could bid someone them paying thousands of pounds to the taxman.
Latest Treasury facts released as part of the Spring Budget shows that the amount of loot being taken from pension funds is higher than look forward when the freedoms were first announced in 2015.
It was initially estimated that the interchanges would mean a total of £900m of extra tax being paid in the tax years 2015-16 and 2016-17. In certainty, a total of £2.6bn in extra tax is now expected to be paid in the two years to 6 April 2017.
People should judge about phasing withdrawals over different tax years
Andrew Tully, pensions technical director at Retirement Advantage, said: ““People should of about phasing withdrawals over different tax years to try and minimise tax paid, and if in any disbelieve, seek financial advice.”
Prudential’s research into the financial sketches and aspirations of people planning to retire in the year ahead – now in its tenth year – rest that more than two in every five people planning to retreat in 2017 (44 per cent) are planning to withdraw some cash from their social security savings.
Most savers over 55 are now entitled to submit to some or all of their savings out in a lump some
Only a quarter of retirees require stay within the 25 per cent tax-free lump sum limit.
The most fashionable use of the cash is holidays, with one in three (34 per cent) of those fetching cash from their pension fund planning to spend it on freudian slips away, while 24 per cent will use at least part of the affluent to pay for home improvements and decoration and 13 per cent will buy a new car.
However, new retirees are not only planning to lavish the money on themselves – their families will also benefit, with around one in five (18 per cent) saying they will gift specie to their children and grandchildren.
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Many are also planning to pay-off debts, with 18 per cent demanding some or all of the cash to pay off mortgages while 14 per cent will use it to transparent credit card debts or loans.
Stan Russell, retirement return expert at Prudential, said: “Being able to withdraw lump take the measure of c estimates from their pension pots gives savers unparalleled adjustability on how to spend their money, and it is clear that people retiring this year are triumphing full use of this benefit.
“Many of the Class of 2017 are withdrawing resources to sort out their finances for retirement, with many paying off mortgages and liabilities, as well as helping out family and enjoying themselves.
“However, it is also unlimited that without careful planning, the tax man could benefit from woman making the most of the newly acquired access to their pension subsidizes.
“For many people approaching retirement and considering how to make the most of their savings, a consultation with a master financial adviser where appropriate, or seeking guidance from the numerous disburden resources available including The Pensions Advisory Service could arrogate to ensure they access their pension in a way that benefits their large and short-term aims.
Nearly one in five are looking to withdraw profuse than the tax-free limit for their pension
“Of course for those who are up till in work, saving as much as possible from as early as possible in their occupation is the best way to help secure a comfortable retirement.”
Financial Conduct Hegemony data shows that fewer than half (47 per cent) of those who abjured all the money from their pension savings between July and September 2016 sought virtuoso financial advice before doing so.
However, the proportion seeking information had increased from just 29 per cent at the start of 2016.