More than 200,000 employees plan to cash in all their retirement savings next year when new pension reforms giving greater flexibilities come into effect, according to research by Hargreaves Lansdown.
The research, which surveyed more than 1,247 people, found that more than one in 10 (12%) respondents with a defined contribution (DC) pension will take advantage of the new pension freedoms, taking thier savings all in one go.
More than one in five (21%) respondents plan to use their windfall to fund a holiday, while 22% plan to use it to live on and 23% to save it.
Just over one in ten (13%) will use the pension flexibilities to pay off debts, 12% will spend their pot on DIY, and 16% plan to reinvest in property.
The research also found that there is an information gap among employees, with respondents not knowing how much tax will be deducted from their pension savings.
Just over a third (38%) of respondents know how much tax would be deducted from a medium-sized pension pot with a value of £29,000.
But only 6% of respondents know which rate of tax would be applied to a large pension pot.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “While we support the basic principles behind the government’s reforms, the speed and complexity of these changes mean that a lot of members are going to be paying unnecessarily large amounts of tax to the government.
“The Chancellor [George Osborne] has effectively engineered a tax windfall for the government from unsuspecting pension scheme members.
“There is an urgent need for the government to think again about how to effectively regulate these new freedoms.
“We want members to take responsibility for, and to engage with, their savings but we also don’t want then paying unnecessary tax bills or running out of money.”