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Pension ‘stealth’ tax needs addressing

22 October 2018

Pension savers opting to access their pension pots without receiving financial advice are falling victim to stealth taxes, which could have a devastating impact on their future financial security, according to LEBC Group. 

Kay Ingram, LEBC director of public policy, has called for greater protection for those who access their pensions without the benefit of regulated advice.

She said: “Since the introduction of pension freedoms, we have seen many examples of the ways in which flexible access has transformed people’s lives for the better.

“However, we have also become aware that the majority of consumers do not understand the way their pension fund will be taxed, nor the restrictions imposed by the treasury on future pension saving, when they withdraw more than their tax-free cash.

“These taxes come as a shock to those who find out about them only when it is too late. We accept that HMRC should tax pension income; given pension savings receive tax relief up front that is only fair. What is far from fair is allowing consumers to unwittingly incur large tax bills which then devastate their retirement plans.”

Consumers deserve more

LEBC says the rise in non-advised drawdown means consumers should receive much more information about the potential impact of their decisions.

The national IFA group believes those accessing pensions without advice should be given a 30-day cooling off period. During that period, LEBC would like to see providers send the consumer a statement setting out in simple terms the tax to be taken from the pension payment and the restrictions imposed on future tax relieved pension savings where more than the tax free cash is withdrawn.

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