A pensions expert says she has been disturbed to discover the new freedoms may be working to the detriment of many retirees as they take out their cash and stash it in savings accounts, suffering a tax hit as a consequence.
Royal London said research has uncovered that significant numbers of consumers are unknowingly losing out through poor decision making when accessing their pension funds.
Fiona Tait, pension specialist at Royal London, said the firm wished to see the reforms work and not act to “the financial detriment of customers”.
She said: “We are extremely concerned that the findings from the research may reflect a wider industry trend. If the intention is for the cash to just stay in a savings account, consumers are potentially paying a tax charge for no additional financial benefit.”

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Some 69% of a sample of 800 Royal London customers using the new pension freedoms, chose to take all of their pension pot as a cash lump sum, independent researchers found.
In most cases, 75% of the cash sum those customers received was subject to an income tax charge. Some 32% of these customers intended to withdraw their money in order to place it all in an alternative savings or investment vehicle. Of those questioned, 23% intended to leave their money in cash within a bank, building society or cash ISA account which may pay a lower rate of return than their pension.
Ms Tait said: “The research indicates that around a third of people who are withdrawing cash do not appreciate that their options could include a switch to a similar investment fund within their existing pension plan without paying the tax charge for full encashment or switch to an alternative provider which allows partial encashment.
“Customers aged over 55 would still have access to their savings whenever they need it and withdrawing money over time is likely to be much more tax efficient.”
Royal London will update its questions to customers to ensure they understand the implications, she said, adding an extra focus in the Retirement Risk Warnings framework would help to ensure that customers appreciate all the options they have within their existing pension. She said this is particularly important for those customers who are not willing or able to access financial advice.
Royal London found that the average size of pension pot being accessed was £15,500, which was in line with figures released by the ABI last month. The average size of fund being fully encashed was slightly lower at £14,100. Based on these figures the likely initial tax charge would be £3,347. This was because a cash lump sum is likely to be subject to emergency tax on payment, although it is possible to reclaim any overpayment at a later date, the firm said.