Ipsos Mori research commissioned by Hargreaves Lansdown shows 12 per cent of investors with a DC pension will take their entire pension in one go.
Just 22 per cent said they plan to use the cash to live on, while 21 per cent said they would spend it on a holiday, 13 per cent will pay off debts, 12 per cent will spend it on DIY and 16 per cent will reinvest it in property.
When asked though about the likely tax implications, only 38 per cent could accurately state how much tax would be deducted from a medium sized pension pot, while only 6 per cent could accurately predict what rate of tax would be applied to large pension pots.
Hargreaves predicts that, based on the median pension pot value of £29,000, the tax generated for the Treasury will be between £800 million and £1.6 billion, depending on the rate of tax the individuals are actually liable for. The lower estimate is based on a 15 per cent tax rate, while the higher estimate is calculated on a 30 per cent tax charge.
Hargreaves Lansdown head of pensions research Tom McPhail says: “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 then paying unnecessary tax bills or running out of money.”
