Pensioners in flexible drawdown could face a huge 70 per cent tax bill if they fail to opt out of auto-enrolment, while those planning to enter the arrangement could be delayed by it.
Retirees working part-time and earning over £8,105 a year will be automatically enrolled into a workplace pension scheme at some point over the next five years, with only one month to opt out due to the recently introduced rules.
Flexible drawdown rules allow pension investors who have secured a £20,000 pension income to make unlimited withdrawals from the remainder of their pension pots. However, the flexible drawdown rules forbid savers from adding to their pension pots in the same year as they drawdown, meaning accidental contributions made through workplace schemes will eliminate drawdown as an option in that tax year.
And pensioners already in flexible drawdown will face a 70 per cent levy on all payments exceeding the capped drawdown limits (£5,300 per £100,000), which could amount to thousands being lost unnecessarily.
Jamie Jenkins, head of client wealth at Standard Life, said many pensioners without financial advisers could be caught out by the rules because they would be unaware of them.
And Claire Trott, pensions technical manager at Suffolk Life, said pensioners doing part-time consulting work are particularly at risk, as they would only have to work a few hours a week to exceed the auto-enrolment threshold.
To opt out of auto-enrolment, you need to inform your employer, who will complete the process for you.
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