Save content
Have you found this content useful? Use the button above to save it to your profile.
Thinkstock/Goodluz

Pension freedom may backfire without advice

by
13th Feb 2015
Save content
Have you found this content useful? Use the button above to save it to your profile.

People nearing retirement may lose out when they're given more freedom to make lump withdrawals from their pensions if they don't get good financial advice, the Low Incomes Tax Reform Group has said.

From April, people who are 55 and over and have a defined contribution pension (a pension based on how much has been paid into your pot), can decide how they take the money.

Up to 25% of lump sum withdrawals will be tax-free. The rest will taxed as income. 

The government is offering a free advice service about the new rules called Pension Wise. The advice will be online but people can ask to talk on the phone or in person.

The LITRG, which is part of the Chartered Institute of Taxation (CIOT) and Tax Help for Older People, have said that prospective pensioners with low incomes and small pension pots could be "left behind" in the new pension rules from 6 April 2015.

"Those with limited means often have complex circumstances and difficult decisions to make with what pension savings they have managed to muster, yet may not be able to pay for advice to ensure they maximise their benefits and minimise their potential tax liabilities," the organisations said.

Anthony Thomas, chairman of LITRG, said: "The tax implications of making withdrawals from pensions are hugely complicated, and consideration needs to be given to the individual’s full circumstances – both current and anticipated – in order to guide someone adequately. Especially for those on low incomes and with limited pension savings, it will be crucial to ensure that tax charges are not unwittingly incurred, as every penny will count when paying their way in retirement.

“We are very concerned that the proposed Pension Wise service will not be able to provide the level of support people will clearly need and that people might well incur substantial and unexpected tax charges on taking lump sums, which may not have arisen had they waited until a new tax year or spread the withdrawals.

People also need to understand the way in which their pension withdrawals will be taxed, including how PAYE applies and whether or not this will need to be included in a self assessment tax return, he said.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.