More than half of retirement savers are confused on pension freedom tax rules

Over half of retirement savers are unclear on what the tax rules are following the launch of pension freedoms, according to new research.

The study, by employee benefits consultancy Portcus, showed 53 per cent of those saving for retirement are confused on tax rules in the wake of new pension freedoms.

The study pointed to a "worrying" view on tax, where one in 20 believe all pension funds are tax-free, while six per cent believed money can be withdrawn tax-free within five years.

And just 26 per cent of retirement savers are aware they can take a quarter of their pension fund tax-free, with the rest of the cash potentially subject to tax at their marginal rate.

The pension freedom rules, which were announced in the March 2014 Budget, means over-55s are able to access their pensions pots without purchasing an annuity.

People older than 55 were slightly better informed, yet only 54 per cent of them knew they can take a tax-free lump sum and are then subject to tax, with 31 per cent admitting they didn't know what the tax implications are.

This comes against the backdrop of the Work and Pensions Committee labelling Pension Wise, an impartial government service to help people understand the options of their pension pots, "not fit for service".

Portus consulting commercial director Steve Watson said: “Pension freedoms have been widely welcomed in that it gives people more control over how they use their own money.

"However, our research shows more needs to be done to educate people about the changes, and employers should take a lead.”