UK. Double tax whammy risk for big pension withdrawals
Thousands of people in the UK are at risk of being hit with huge tax bills when they enter drawdown, insurance provider NFU Mutual has warned.
The firm analysed data from the Financial Conduct Authority (FCA) showing that in 2020-21 around 15,296 pension pots worth more than £50,000 ($66,144, €58,500) were fully withdrawn.
Worryingly, 61.3% of those who cashed out did so without seeking financial advice, up from the 58.9% of the previous year.
A similar trend was also registered for pots of £100,000 or more, where six-in-10 were withdrawn without advice, an increase from 56% in 2019-20.
Sean McCann, financial planner at NFU Mutual, said the rise in the number of people cashing in their pots in full without financial advice is worrying because retirees might end up with huge tax bills as a result.
This is because pensioners who cash in large pots in one go risk paying income tax at 40% or even 45% on part of their withdrawal, as well as losing inheritance tax protection.
Making withdrawals without advice can lead to a potential double tax whammy for savers.
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