Nearly three in ten (29%) have been using their retirement savings to pay for daily living costs, according to Citizens Advice.
People accessing their savings are being caught out by unexpected taxes and welfare reductions, the organisation reported.
The new figures showed that overall 9% of people had unforeseen tax problems- such as tax deductions they weren’t expecting. This increased to 30% among people who took their whole pension pot in one go.
Some 11% of the 500 people polled with pension pots worth less than £20,000 said they have faced unexpected issues with their benefits. Of those who experienced tax or benefit problems after using the pension freedoms two thirds (64%) managed to get these resolved and the large majority (87%) said this was easy to do.
The report highlighted that many people using the freedoms to access their pension savings are still in work and in some cases still paying into another pension pot that they have yet to make decisions about.
Andrew Pennie, head of pathways at Intelligent Pensions, said: “The findings of the survey are disturbing and another indication that there is still a huge amount to be done if pension freedoms are to be the success we all want them to be.
“We have seen evidence of people using drawdown who shouldn’t be or in a way that will jeopardise their future retirement income and while we anticipated a lot of people with small pots to cash-out, it’s genuinely shocking that a third of those surveyed with pots over £100,000 are cashing out and keeping their money in the bank.
“Not only is this likely to result in a poor outcome from a tax perspective but completely fails to address the need to provide a sustainable retirement income against the risks of living too long and the impacts of inflation.”
Gillian Guy, chief executive of Citizens Advice, said: “The pension freedoms are popular with consumers but some people are experiencing unexpected losses.
“With annuity rates falling, uncertainty around returns on drawdown products and the drop in interest rates many are opting to manage their savings themselves, through bank accounts or investments. Others are taking the opportunity to clear debts, which would otherwise hang over their retirement.
“In a minority of cases people are being caught out by unexpected consequences of
using the pension freedoms, such a being hit by tax deductions or a cut to their benefits.
“As people’s pension choices become more complicated government and providers need to continue their work to promote free Pension Wise guidance, ensuring people are fully informed about their options as they move from work into retirement.”
Of those surveyed who expected to use the money they have taken from their pension savings since April 2015 in the non-immediate future, a third (33%) said guidance would help them navigate their choices. A quarter said they’d find product comparison (26%) or financial advice (25%) useful.