The company says the step would protect those individuals withdrawing from “unexpected tax grabs.”
LEBC has repeated its call for those withdrawing without advice, following the recent announcement by HMRC that it will not be changing the way in which one off withdrawals from pension plans are taxed when withdrawn under the flexible Pension Freedoms regime.
Any withdrawal over the tax free 25% of the fund is taxed as though it is a monthly payment and emergency tax has to be deducted from the payment.
This, LEBC says, can result in the taxpayer overpaying and, while the cash can be claimed back, it “substantially” reduces the funds available.
Taking withdrawals, in excess of the 25% which is tax free, also restricts the saver’s ability to save in a pension in the future, including receiving contributions from an employer.
After these kinds of withdrawals pension savings with the benefit of tax relief are restricted to £4,000 per year with any amount over this taxed as income.
LEBC wants the Government to change the rules to “protect those who access drawdown without taking regulated advice.”
Since the Pension Freedoms were first introduced LEBC has been urging a 30-day ‘cooling off’ period to be applied to those who seek access to more than the tax-free part of their pensions, without the benefit of regulated advice.
Kay Ingram, director of public policy at LEBC, said: “We want those who do not take advice, before accessing their pensions, to be given a clear warning about the tax due on their savings and the restrictions which will apply to any future tax-exempt pension savings.
“A simple statement and a cooling off period would enable them to decide whether they want to pay a large tax bill and whether they are willing to forego future pension savings.
“The current system means that many without the benefit of professional advice are presented with a large unexpected tax bill and restrictions on building their pension savings in the future.
“These rules can severely reduce their retirement savings and a warning of this before it is too late is only fair.
“Timing the withdrawals differently could result in a better outcome for the consumer.”