By Tanya Jefferies for Thisismoney.co.uk
Published: 02:21 EST, 18 November 2014 | Updated: 04:01 EST, 18 November 2014
Shock bill: Some 59 per cent of people aged over 55 said they did not understand the tax implications of taking their whole pension pot as cash
Shock tax bills could start landing on the doormats of people who withdraw big sums from retirement savings following ‘pension freedom’ reforms next April, warns a retirement specialist.
Everyone aged over 55 is suddenly going to get unfettered access to their whole pension pot from spring 2015 – but just like now, only 25 per cent of retirement savings will be tax-free while the rest will be taxed as income.
Workers used to simply paying the basic rate of tax through employers might not realise dipping too freely into their pension pot at retirement will put them into the higher rate tax bracket, according to MGM Advantage.
The 20 per cent basic rate tax threshold will be 10,500 a year from next April, while the 40 per cent higher rate of tax will kick in for those earning more than 42,285.