From the age of 55 people will be able to access “as much or as little as they want” from their savings, however, although the first 25% will be tax free, subsequent withdrawals will be taxed at the individual’s marginal rate.
The move builds on pension reforms which ended rules that force most Britons to use their pension savings to buy an annuity.
However, it is feared that savers who cash in pensions next year face “emergency” tax charges worth up to a third of their funds, which they could struggle to get back.
Analysis of official documents carried out by the Telegraph, showed withdrawals of anything above £3,500 are likely to cause a tax charge of 40%, and many people using new freedoms to withdraw pension savings will be taxed at 45% if they are withdrawing over £20,000.
HMRC has insisted the impact would not be widespread, but pension experts have warned that “chaos” awaits hundreds of thousands of savers planning to take advantage of the government’s reforms.
Documents published this week by HMRC show that it has asked pension companies to deduct tax automatically when savers ask for their money, but companies may have to use an “emergency” tax code in some cases leading to a long wait to reclaim the money.
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