Quarter of over-55s unaware of pension tax

One in four people approaching retirement don't realise they have to pay tax when withdrawing cash from their pension savings.

In a survey of more than 2,000 people over the age of 55, Legal & General found that 27% thought they could access their pension pot completely tax-free, potentially leaving them facing unplanned tax bills.

The Price of Freedom research suggested that 21% of over-55s would be "shocked" to find they had to pay tax on their pension.

Of those who expect to get some or all of their pension pot tax-free, more than a third (37%) think they wouldn't pay any tax on a lump sum greater than the 25% threshold.

Legal & General also found that savers tend to be cautious when it comes to their retirement savings, with over three-quarters saying they would not take up an investment in later life that would double their money in retirement if it also meant that the level of risk was doubled.

Almost half said they wouldn't take any risk with their pension pot, and 73% would avoid any 'big risks' to their life savings.

"Making retirement planning easier to understand and supporting consumers with good advice is crucial," commented Emma Byron, managing director of Legal & General Retail Retirement Income.

This means providing clear and jargon-free information and guidance for every customer.

"Conversations need to be about retirement goals and plans, not about products," Byron explained. "If we as an industry can do this, improving the way we communicate with customers and providing them with the support they need to make informed decisions, then people across the UK will be in a much better place to enjoy a more prosperous retirement."