Tax trap warning on pension freedom

The government plans to force pension providers to warn people about the tax consequences of withdrawing money, says the Financial Times.

Research shows that many people plan to use the pension freedoms that will come in April 2015 to withdraw large sums from their pension pots – but few people realises that they will pay income tax on all withdrawals above the 25% of the fund that can be taken as tax-free cash.

In order to make the most of the new pension freedoms, people will have to engage in serious planning since the timing of withdrawals has implications for the way the funds are invested.