The director of national advice firm LEBC is calling on the government and the Financial Conduct Authority (FCA) to better protect consumers who are looking to access their pensions without regulated advice.
Kay Ingram, director of public policy at LEBC, called for a mandatory 30-day cooling off period for those looking to access their pensions without advice.
Ms Ingram also said providers should send consumers a statement explaining how much tax will be taken from their savings when they access it and any future restrictions they will face to their tax relieved savings.
Savers can withdraw 25 per cent from their pensions tax free from age 55, after that they incur a tax charge set at their marginal rate.
There are also implications for those wanting to put more money into their pot after making a withdrawal, as the money purchase annual allowance kicks in.
According to LEBC, the rise in non-advised drawdown needs to be matched with more information for consumers so they can avoid making the wrong decisions.
Ms Ingram said: "We have called upon the FCA and the government to require those accessing pensions, without advice, to be given a 30-day cooling off period.
"During that period, we would like providers to send the consumer a statement, setting out in simple terms, the tax to be taken from the pension payment and the restrictions imposed on future tax relieved pension savings, where more than the tax-free cash is withdrawn.
"The majority of consumers do not understand the way their pension fund will be taxed, nor the restrictions imposed by the Treasury on future pension saving, when they withdraw more than their tax-free cash.
"These taxes come as a shock to those who find out about them only when it is too late."
She added: "We accept that HMRC should tax pension income, given pension savings receive tax relief upfront, that is only fair. What is far from fair is allowing consumers to unwittingly incur large tax bills which then devastate their retirement plans."
Phil Billingham, director of perceptive planning said: "Anything that can be done that has a positive effect on improving retirement outcomes has got to be welcomed.
"My concern is that there’s a great deal of evidence that shows that consumers already feel overwhelmed at the sheer volume of disclosure in documentation. Increasing that doesn’t seem likely to help.
"However I’d agree that one area of weakness in pension freedoms has been consumers’ understanding of taxation, particularly if they take more upfront. We need informed consent so that consumers understand the impact of the actions that they take."
rosie.quigley@ft.com
