People who have been used to paying basic rate tax their whole life could find themselves paying 40% on part of their pension fund if they withdraw large sums in one year, a firm has warned.
The 'Budget tax trap' on pension withdrawals is something savers need to be more aware of, MGM Advantage has said, following the reforms to the system announced in March.
It issued the warning after its research found 59% of over 55s did not understand the tax implications of lump sum withdrawals.
The company said its findings showed "there is a complete lack of understanding around the implications for taking the whole pension pot as cash".
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The research for MGM Advantage also showed that when the tax implications were explained, people were far more likely (83%) to leave their money in a pension wrapper and draw an income as needed, rather than taking the entire pot as cash in one go.
Some 17% said they were happy to pay tax on any withdrawal.
The example MGM used was of an average pre-retirement salary of £30,000 and average annuity pot of £35,600. This would would mean paying around 33% tax (£11,867) if they chose to withdraw their entire pension in the same tax year they were earning.
Andrew Tully, pensions technical director at MGM Advantage, said: "The new freedoms proposed by the Chancellor could result in some scary tax bills for those wanting access to all of their pension savings in one go.
"While increased flexibility is good and something we fully support, there is a huge potential downside and a minefield to navigate. We need to make sure people fully understand the impact of the tax hit if they want access to their pension money in one fell swoop.
"People taking an income over £100,000 could find themselves in an effective 60% tax bracket due to the reducing personal allowance over that threshold. Higher rate taxpayers will of course pay 40% on any withdrawals from their pension pot or even the additional rate of 45% on some of the fund if their total gross earnings exceed £150,000.
"Retirement just got a whole lot harder to work out, so speaking to a professional financial adviser will be key in the new world to help consumers fully understand the options that will be available to them."
MGM Advantage has launched an online calculator to help work out tax for lump sum withdrawals from April 2015.