Millions of pension savers risk losing thousands of pounds to tax unnecessarily as confusion over retirement income options leaves many vulnerable to costly mistakes, experts warn. Just 42% of adults say they have a clear understanding of the options available when taking money from their pension, according to research by Hargreaves Lansdown.
Even among those aged over 55, the figure rises only slightly to 45%. The warning comes as pension wealth is set to become far more exposed to inheritance tax (IHT) under planned rule changes from April 2027.
Financial experts say a lack of understanding could result in retirees paying unnecessary income tax and leave families facing inheritance tax bills running into thousands of pounds. Under current rules, money left inside a pension when someone dies is generally exempt from IHT, but from April 2027, unused pension funds will be brought into estates for IHT purposes.
For a pension pot worth £100,000, that could mean an inheritance tax bill of up to £40,000 in some circumstances. Even a relatively modest pension fund of £7,500 could generate a £3,000 tax charge if fully exposed to the 40% rate.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: 'This can lead to not having enough income, potentially running out of money, or incurring huge tax bills that needn't have happened. All can have a huge impact on your standard of living, and all are avoidable.'
Experts advise pension savers to consider their options carefully and seek guidance. People aged over 50 can access free guidance through the Government-backed Pension Wise service, while those with larger pension pots may benefit from regulated financial advice.
