Under current proposals emergency tax codes will be used for many to assess how much tax should be deducted from any pension withdrawals. This will likely lead to many basic-rate taxpayers, or even non-taxpayers, seeing deductions at 40%, or even 45%.
As many of these will take no professional advice whatsoever, the first they will know of this tax charge is when a far lower payment than they were expecting lands in their bank account. Those planning for an around-the-world cruise next year could therefore end-up with the budget for a river cruise instead.
Whilst the implementation of Workplace Pensions will ensure that the vast majority of employees will have pensions moving forward, this will do little to plug the ‘pension’s black hole’ that exists in the United Kingdom if pension funds are quickly blown. Pressure is therefore mounting on the Government to implement some basic safeguards to ensure pensions are used to provide a liveable income stream in retirement not just a ‘once in a lifetime’ holiday.
To find out more about the new pension rules, download our guide here.
This article was previously published on Tilney prior to the launch of Evelyn Partners.