The survey, conducted by Ipsos Mori over the last two months with 1,247 adults in the UK aged between 45 and 65, found that 12 per cent of investors with a defined contribution pension will take advantage of the new freedoms, taking all of their pension in one go.
With around 7.5m people aged between 55-64 and half of households owning a DC pension, even based on conservative estimates, Hargreaves Lansdown expects as many as 200,000 people to cash in their pension pots entirely next year.
Based on the median pension pot value of £29,000, the tax generated for the Treasury will be between £800m and £1.6bn, depending on the rate of tax the individuals are actually liable for (the lower estimate is based on a 15 per cent tax rate and the higher estimate on a 30 per cent tax charge).
The only official projection from the government showed an expected tax increase of £320m in the next tax year, but gave no explanation of how the figure has been arrived at.
When tested about the likely tax implications, 38 per cent could accurately state how much tax would be deducted from a medium sized pension pot, while only 6 per could accurately predict what rate of tax would be applied to large pension pots.
Hargreaves Lansdown stated that this information gap is a cause for concern, given the substantial numbers of people planning to take advantage of the Budget at-retirement changes.
Furthermore, the survey found that only 22 per cent plan to use their pension pot to live on, while 21 per cent will go on holiday with the proceeds, 16 per cent will reinvest in property, 13 per cent will pay off debts and 12 per cent will spend it on DIY.
Tom McPhail, head of pensions research, said that while the firm supports the basic principles behind the government’s reforms, the speed and complexity means that a lot of investors are going to paying unnecessarily large amounts of tax.
“The chancellor has effectively engineered a tax windfall for the government from unsuspecting pension investors.
“There is an urgent need for the government to think again about how to effectively regulate these new freedoms. We want investors to take responsibility for and to engage with their savings but we also don’t want then paying unnecessary tax bills or running out of money.”