According to Citizens Advice, some people are being hit with an unexpected tax bill after taking money from their pension pot. Meanwhile others are facing reductions in welfare payments due to income received by releasing the funds. Since the pension freedoms came into effect in April 2015, anyone aged 55 and over is free to withdraw as much or as little as they like from their pension pot, subject to income tax.
The Citizens Advice report looked into the cases of 500 people who have accessed their pension pots. Of these 500, 9% had unexpected tax issues and 6% found their benefits were affected.
Gillian Guy, chief executive of Citizens Advice, said “The pension freedoms are popular with consumers but some people are experiencing unexpected losses.”
Evidently, as the pension landscape continues to change, those contributing to their pot need even more information about their options. People’s pension choices are becoming ever more complicated, and Government and providers must endeavour to keep contributors and pensioners alike fully informed.
This news follows reports a few weeks ago that a minority of those aged 55 and over are withdrawing too much from their pension pots. According to the Association of British Insurers (ABI), in the first three months of 2016 3,379 people (approximately 4%) took out more than 10% from their pensions. Many even took their entire pension pot in one go.
Steve Webb was the pension’s minister when the new system was announced and is now director of policy at Royal London Pensions Company. He says “It is vital that anyone considering taking their money out of their pension pot has access to high quality advice and guidance, which stresses the option of leaving the money invested.”
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