As many as 200,000 investors could be set to cash in their pension savings next year, amounting to more than one in 10 members of defined contribution schemes.
According to research commissioned by Hargreaves Lansdown, this could result in £1.6 billion pouring into the government's tax coffers. However, fewer than half of respondents could accurately say how much tax would be taken from a medium-sized pension pot and just over one in 20 knew how much would be paid from a large pot.
According to Hargreaves, annuity sales have halved since the Budget in March as people approaching retirement pause to see what new options become available.
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A report by the Association of British Insurers, the number of annuities sold fell by 37.5% between the first and second quarters of 2014.
More recent research shows that annuity rates are also falling, with the average annuity paying £2,058 less over the course of retirement than it did pre-Budget.
Based on the median pension pot value of £29,000, researchers guess the Treasury could receive a windfall of anywhere from £800 million to £1.6 billion.
Tom McPhail, head of pensions research at Hargreaves, says: "Whilst we support the basic principles behind the government's reforms, the speed and complexity of these changes mean that a lot of investors are going to be paying unnecessarily large amounts of tax to the government. 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 them paying unnecessary tax bills or running out of money."
To find out about deciding between buying an annuity and going into drawdown, read: Annuity vs pension drawdown - is there a clear winner?
David Smith, director of financial planning at Tilney Bestinvest, warns that many retirees may receive a tax shock when they see just how big a slice the government will take.
"Under current proposals emergency tax codes will be used for many to assess how much tax should be deducted from any pension withdrawals. This will likely lead to many basic rate taxpayers, or even non-taxpayers, seeing deductions at 40 or even 45%.
"As many of these will take no professional advice whatsoever, the first they will know of these tax charges is when a far lower payment than they were expecting lands in their bank account."
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This article was written for our sister website Money Observer