It is estimated that 130,000 retired people per year will take money out of their pension pot under new flexibility rules, according to the tax authority.
In the Budget, Chancellor George Osborne said that people who had saved would be able to use their pension pot however they liked. This means that retirees will be able to take it in cash,although the majority of this would be taxed, from next April.
In a document which outlined the impact of the policy which has now been published, HM Revenue and Customs said that a third of people would use this option. Initially, around 400,000 people would have the chance, with 130,000 of them expected to take it.
Until now, most people who have taken part in defined contribution schemes, where the pension amount depends on the amount of investment, bought a pre-set income from a provider when they retired. From next April, people from the age of 55 will be able to take the cash- but only the first 25% would be tax free and the rest would be subject to income tax.
A pensions research insider said:[quote] “Tax could easily wipe out a sizeable chunk of peoples pension savings, potentially taking many people into the higher rate tax band who have never paid tax at that rate before. Trusting people to act responsibly with their pension savings is a huge step forward, but it is essential to back this with the right guidance and advice.” [/quote]
However, in contrary to this, the organisation Saga had asked 2,400 people over 50 about the new rules, with only 15% saying that they planned to cash in their whole pension. Saga joked that it had found just 23 people who wanted to ‘blow their pension on a Lamborghini and living the high life.’
Saga said that the other half plan to use the money to secure a future income for their retirement.