Many individuals aged 55 and above do not know that they can withdraw 25% of their pension pot tax-free, according to research from Standard Life.
The study revealed that a significant 43% of this age group are unaware of this benefit, potentially leading to uninformed decisions when accessing their pension savings.
Even those approaching the age of pension access display a lack of knowledge, as 52% of individuals aged between 50 and 54 are also oblivious to this rule.
The study conducted by Standard Life further highlighted that among the 57% of over 55s who are aware of the tax-free withdrawal option, 21% have already taken advantage of it, while 9% plan to do so in the future.
When analysing the timing of these tax-free lump sum withdrawals, most over 55s (69%) who have already utilised or plan to utilise this benefit did or will do so at the point of retirement. In contrast, 16% have opted for or plan to make withdrawals at various points throughout their retirement journey.
Standard Life managing director for retail Dean Butler said: “When the time comes to take money out of your pension pot, it’s important to feel confident about your different options, and this includes understanding that you’re entitled to take 25% tax-free cash from your pot, either in one go or at intervals.
“Taking a tax-free sum from pension savings is a stage a lot of people look forward to, however, there are some key things to consider about how you take this – for example taking it all in one go or splitting withdrawals into chunks over a period of time – and the implications and benefits involved.
“Whichever way you plan to take out your pension money, you need to think about tax, as there may be income tax to pay on any money you take out over your tax-free entitlement of 25% of the fund value. Being as clued up as possible, or seeking guidance or advice, will help you make the best decision for your circumstances and make the most of your well-earned retirement savings.”