Pension scheme members that take advantage of the pension freedom reforms without taking advice first, risk paying too much tax, LEBC director of public policy, Kay Ingram, has warned.
Speaking at the Westminster and City Retirement Income Solutions Conference in London today, 6 December, Ingram said those seeking flexible access to pensions, without the benefit of regulated advice, risk paying too much tax and higher charges in accessing their funds.
She warned that they could also fail to plan for longer-term income needs and run out of funds in later life, suffering an income shortfall by failing to shop around; taking advice could overcome these problems and create better retirement outcomes.
“It is important that those accessing their pensions, without regulated advice, understand that their product provider will not be responsible for decisions made when drawing down income from a pension plan. Unlike regulated advisers, who take responsibility for their recommendations and tailor solutions to an individual’s circumstances, pension providers can offer only a limited range of options from their own product suit,” she said.
Ingram renewed LEBC’s call for a 30-day cooling off period to be introduced for those who access pension freedoms without advice.
“Our experience in talking to thousands of retirees every year, tells us that many consumers do not understand the tax treatment of pension withdrawals. Many have been overtaxed by the provider using an emergency tax code, which is incorrect. Others do not realise the restrictions placed on future pension funding when more than the tax-free lump sum is withdrawn, potentially losing the benefit of employer-sponsored pension funding. A cooling off period would enable them to be forewarned of these pitfalls instead of finding out when it is all too late.”
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