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1.7 million Brits face surprise pension tax bill

31/03/2015

With just days to go until the new pension freedoms become reality, new research from YouGov and wealth manager Old Mutual Wealth reveals that one in every ten people (9%) who will have access to their entire pension savings from next week don’t know that pension income is taxable.

There are 18.5 million people aged 55 and over in the UK, meaning 1.7 million people could potentially face a surprise tax bill as they have more flexible access to their savings.

In addition, a significant one in four people (24%) don’t fully understand the tax treatment of pension income – that normally, 25% can be taken tax free with the remaining amount taxed at their marginal tax rate.

The survey also unveils that only one in four (26%) people who could have immediate access to their pension savings have a good understanding of income drawdown. This means that almost 13.5m people do not understand the main method of withdrawing cash without buying an annuity. However, this is an improvement from the 17%* of people who said they had a good understanding of pension drawdown when asked in July 2014, showing that awareness is improving as the freedoms become a reality.

Similarly, just 38% of people suggested they had a good level of understanding of annuities themselves, up from 30% previously*, while high understanding of pensions as a whole reduced from 47%* to 45%.

A significant proportion of people are planning to make use of the new pension freedoms post April. The research shows that over half (56%) are planning to access their pension savings in some format, including:

  • 14% of these will take their 25% tax free cash and leave the rest invested
  • 11% will take different amounts as and when they like
  • 10% say they will take regular drawdown payments
  • 8% will take some of the money from their fund, leaving the rest invested
  • 6% want to take their whole pension as cash despite tax implications
  • 7% say they will take their pot of less than £30k under trivial commutation rules

Only 14% of people plan to still purchase some form of annuity.

Adrian Walker, Retirement Planning Manager at Old Mutual Wealth, says: “It is absolutely vital that people understand the tax implications of taking income from their pension savings. The new flexibilities that come into effect next week are great but poor planning could lead to surprise tax bills.

“Having greater control over how and when you take income from your pension savings is a positive change, but there could be disastrous outcomes if people don’t take advice and understand their options better. The Government’s Pension Wise service will be an important tool in improving understanding of the choices people have of drawing income from their pension savings. However, only by seeking full professional advice will people be able to receive personalised recommendations tailored to their individual circumstances.”

* Source: Old Mutual Wealth Retirement Income Uncovered report – Dec 2014

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1023 adults aged 55 and over. Fieldwork was undertaken between 11/03/2015 - 17/03/2015.

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to editors:

Quilter is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

On a ‘go forward basis’, Quilter oversees £ 111.6 billion in customer investments (as at 31 March 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

The Quilter businesses will be re-branded to Quilter over a period of approximately two years following separation from Old Mutual:

  • Intrinsic to Quilter Financial Planning
  • Private Client Advisers to Quilter Private Client Advisers
  • The Multi-Asset business to Quilter Investors
  • The UK Platform to Quilter Wealth Solutions
  • The International business to become Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
  • Quilter Cheviot will retain its name.

On 19 December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Quilter is part of Old Mutual plc, a FTSE 100 group that provides investment, savings, insurance and banking. For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.

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