By Intense Life Desires 
Pension withdrawals can prove costly
Wealth manager trade body PIMFA has called for a clear tax road map to stem the tide of people accessing their tax-free pension cash because of speculation and headlines.
PIMFA pointed out that the number of pension plans entering drawdown where only the tax-free lump sum was taken surged to 111,878 – up 13% in just six months and 33% up on last year.
Simon Harrington, head of public affairs at PIMFA, said: “Endless speculation about changes to pension rules – particularly the future of the 25% tax-free lump sum – is already having a real and detrimental impact on consumer behaviour.
“Last year, many people made decisions to unnecessarily access their tax-free cash based solely on headlines. This decision has proved irreversible for them and will impact their future pension saving ability.”
He warned that the persistent uncertainty on pension reforms undermined confidence and was prompting behaviour that risked people’s financial futures.
Taking the 25% tax free lump sum reduced the invested balance, depriving the consumer of much needed investment growth in the 10 years or more up to their State Pension age, he said. PIMFA has calculated that this could be equivalent to up to five years of the average state pension income.
He said the uncertainty, coupled with policy interventions such as the plan to levy IHT on unused pension funds, runs the risk of further discouraging people from in investing in pensions.
Mr Harrington said: “Investors need certainty about how wealth can be treated in accumulation and decumulation and the Government should set out a clear taxation roadmap in pursuit of its mission to drive economic growth.
“But we are also mindful of the responsibility which lies with industry and the wider ecosystem. We would also caution against continued unfounded speculation – before further detriment is caused to the financial futures of millions.”
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