Over-55s ‘plan pension pot spree’


Published: Tuesday 28th October 2014 by The News Editor

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Up to 200,000 people plan to cash in their entire pension pots next year, with one in five using the money to pay for a holiday, new research shows.

Those aged over 55 will be able to draw their retirement savings without paying punishing tax rates from April under a Government shake-up.

More than one in 10 (12%) of investors with a defined contribution pension say they will take all of the money in one go, according to the first detailed insight into the potential impact of the reforms.

Research commissioned by financial services firm Hargreaves Lansdown found that only a fifth (22%) of those planning to take advantage of the new measures intend to use it to live on.

One in five (21%) have earmarked the cash to pay for a holiday, 13% will use it to pay off debts, 12% say they will carry out DIY and 16% will reinvest in property.

Hargreaves Lansdown said the study indicates that the Treasury stands to receive a tax windfall of up to £1.6 billion.

The report found that only two in five investors planning to cash in can accurately state how much tax would be deducted from a medium-sized pot, while the proportion falls to just 6% for those with large pots.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “Whilst we support the basic principles behind the Government’s reforms, the speed and complexity of these changes mean that a lot of investors are going to paying unnecessarily large amounts of tax to the Government.

“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 also don’t want them paying unnecessary tax bills or running out of money.”

The Government shake-up, initially outlined in this year’s Budget, will mean that, from April, people aged over 55 will be able to take their pension pot subject to their marginal rate of income tax in that year, rather than the current situation where they are charged 55% tax if they withdraw the whole pot.

When the proposals were first set out in the Budget, Pensions Minister Steve Webb said he was “relaxed” about the possibility of people blowing their savings on a Lamborghini sports car.

:: The research was carried out in September and October, using a base of 1,247 adults in the UK aged between 45 and 65.

Published: Tuesday 28th October 2014 by The News Editor

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