Stan Russell

Head of Business Development

Class of 2017: One in Five People Retiring this Year Could be at Risk of Unnecessary Tax Bills

12 April 2017     

  • Prudential’s study finds 19 per cent of this year’s retirees risk higher tax bills by withdrawing more than the tax-free lump sum allowance from their pension
  • More than two out of five of this year’s retirees plan to withdraw cash from their pension savings
  • Most popular uses for the pension cash withdrawals are holidays, home improvements and paying off mortgages

Nearly one in five people (19%) planning to retire this year with pensions could be risking unexpected tax bills, by withdrawing more than the tax-free lump sum that savers can take from their pensions at retirement, according to new research1 from Prudential.

Under the pension freedoms reforms, most pension savers over the age of 55 are entitled to take some or all of their pension savings in the form of a cash lump sum, with the first 25 per cent being tax-free2. However, in its Class of 2017 study, Prudential found that 19 per cent of those retiring this year with pensions are planning to withdraw more than the 25 per cent tax-free limit from their pension. This could leave them with a one-off tax bill or having to pay tax at a higher rate than they normally do.

Prudential’s unique research into the financial plans and aspirations of people planning to retire in the year ahead – now in its tenth year – found that more than two in every five people planning to retire in 2017 (44 per cent) are planning to withdraw some cash from their pension savings. A quarter of retirees will stay within the 25 per cent tax-free lump sum limit.

The research shows that the most popular use of the cash is holidays, with one in three (34 per cent) of those taking cash from their pension fund  planning to spend it on trips away, while 24 per cent will use at least part of the money to pay for home improvements and decoration and 13 per cent will buy a new car.

Media contacts

Jo Field (Mon-Wed)

020 7004 8078

jo.field@prudential.co.uk

Louise Bryans

020 7004 8280

louise.bryans@prudential.co.uk

Ben Davies (Thur-Fri)

020 7004 8082

ben.davies@prudential.co.uk

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