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Ten per cent of people planning to retire this year expect to cash in their entire pension savings as a single lump sum, according to a recent study from Prudential, risking their future retirement income.
The findings from the annual research into the financial plans of people planning to retire in the year ahead show that 20% retiring this year will be risking an entirely avoidable tax bill shock by taking out more than the tax-free 25% limit on withdrawals. However, they are not necessarily planning on spending all the cash; the main reason given by those taking their entire fund at once was to invest in other areas such as property, a savings account or an investment fund (71%). The research also highlights that around two thirds (66%) of people are planning on retiring early.
Since the pension freedom reforms in 2015, over 1.1 million people aged over 55 have withdrawn over £15 billion in flexible payments. Government estimates show that approximately £2.6 billion was paid in tax by people taking advantage of pension freedoms in 15/16 and 16/17 tax years, with another £1.1 billion raised in the 17/18 tax year.
Using the cash for holidays is the most popular use (34%), with around 25% expecting to use the money for home improvements, while 20% will gift the money to children/grandchildren.
If you require advice concerning pensions or other financial matters, contact our expert team today.
