Pensions - Articles - Third of DC pension members unaware of tax free withdrawals

Over a third (38%) of DC pension members at pre-retirement age (aged 50-65), remain unaware of their tax free pension allowance, while a third (32%) believe, incorrectly, that they can withdraw their entire pensions pot without paying tax, reveals a new survey from Hymans Robertson.

 Nearly a fifth of survey respondents (17%) also wrongly believe they don’t have to pay any tax on income from their pension, a stark statistic given the vital decision-making facing this group. The findings are an important reminder to employers of the need to review their current support for their members as they face decisions about their pension, especially as they reach retirement age. Employers must establish if they could offer more help through online tools and workplace support, warns the leading pensions and financial services consultancy.

 Commenting on the role employers have in educating their staff and why a change is needed, Kathryn Fleming, Partner, Hymans Robertson, says: “The results of our survey create a worrying picture. A toxic mix of a lack of pensions knowledge, a reprioritisation of finances throughout the pandemic and poor workplace support are creating an ever-widening financial literacy gap. It is clear that those at a stage when they should be knowledgeable about their pension choices still have huge misunderstandings. Decisions made in haste are likely to have far reaching consequences for this age group. Without a real change many are at risk of making grave financial errors as they approach retirement. With a limited timeframe to make this change the onus is on employers, under their guidance role, to help narrow this gap through a combination of education and workplace tools.

 “It has been a year like no other, and the importance of financial education may have been deprioritised as employers sought to keep staff safe, adapt to working from home and reshaped their day to day roles. However, as life starts to return to normal, we would urge employers to ensure that they have the right workplace support in place for their staff. Otherwise we could be facing a lost generation to pensions tax. There should be a moral responsibility for employers to help protect future generations from this confusion and to guide them into making the right financial decisions for their retirement.”

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