The government has raised £2.6bn in tax receipts because of pension freedoms - and it could be at the expense of funding retirement.

It is nearly three times more than it expected to raise, as retirees rush to cash in their savings.

A combination of factors led to the tax funds collected being larger than anticipated.

First, average withdrawals have been larger than the government expected – they expected individuals to spread withdrawals over four years, and they haven't.

Second, many people with Defined Benefit (DB) pensions will have converted some or all of it to a Defined Contribution (DC) fund, which means they typically draw this money faster than the DB benefit would have been paid.

Chris Noon, partner at Hymans Robertson, said the larger tax receipts is an indication of a general lack of understanding.

"Individuals have been making sub-optimal choices, due to a lack of understanding of the tax consequences of their decisions and they've been stung with hefty tax bills as a result," he said.

Noon says some of the increased tax revenue will come at the expense of individuals' pension pots, indicating a need for better support around the decisions people make.

Specifically, he said, trustees have a moral duty to support scheme members with complex choices at retirement.

"The message could not be clearer: we need to be better at helping consumers exercise their freedoms in an informed way," he said.

"There is a real danger that the many people who have withdrawn funds without help from an adviser, will discover that they have been taking out too much and get hit by huge tax bills, which will then deplete their remaining pension pot."

The numbers cashing out of DB pensions have soared since freedom and choice, with twice as many people transferred in the first year and momentum increasing.

"Ensuring people make the right choices when making one of the biggest financial decisions of their life is a natural extension of trustee duties and there is much that they can do," said Noon.

"Members staying or transferring out of DB must do so on an informed basis and with access to quality advice - for example, putting in place a preferred advisor for a scheme can bring dramatic cost savings.

"If scheme members are unsupported and make the wrong choices this could come back to bite trustees and employers."

"If they don't get this right, they run the risk of members ultimately holding them responsible for not providing the support they need and expect."

First published 10.03.2017

Lindsay.sharman@wilmingtonplc.com