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Holidays top of the list for savers

29 October 2014 10:16

One in five plan to use their pension pots to pay for a holiday

One in five plan to use their pension pots to pay for a holiday

A new study backs up the notion that over-55s plan to capitalise on pension reforms to book 'bonus' holidays abroad.

The research follows previous advice from the Government on how the shake-up - which will allow those aged over 55 to draw their pension pots without paying higher tax rates - will give savers the opportunity to access "as much or as little" of their savings at any time.

According to research commissioned by Hargreaves Lansdown, as many as 200,000 people plan to cash in their whole pot as soon as possible, with more than a fifth planning to use the cash to splash out on a holiday.

Around one in 10 investors, supposedly set to withdraw all of their money at once, will face the decision of what to spend the cash on; whether that's to pay off debts, do up the house or reinvest. The 21% who have earmarked it for a holiday shouldn't forget to keep a small amount aside for senior travel insurance.

Financial services firm Hargreaves, however, has issued a word of warning, suggesting that the changes may point to the Treasury receiving a tax windfall of up to £1.6 billion.

Tom McPhail, head of pensions research, said while the basic principles of reforms are supported, the speed at which the changes have been implemented - and their complexity - could leave a lot of investors paying unnecessarily large amounts of tax.

With only two in five investors knowing how much tax they would pay on a medium-sized cashed-in pot - and 6% aware for those with bigger savings - the firm says that the Government should think again about how to regulate the "new freedoms".

"We want investors to take responsibility for and to engage with their savings but we also don't want them paying unnecessary tax bills or running out of money," Mr McPhail said.

The reforms announced in this year's Budget mean that as of April next year, over-55s can access their pensions savings at their marginal rate of income tax in that year, rather than the 55% tax rate currently charged upon withdrawal of a whole pension pot.

:: A total of 1,247 UK adults aged between 45 and 65 were involved in the study which took place i n September and October.