Three in 10 (30%) people approaching retirement are unaware of whether they’ll be taxed on their retirement income, Shawbrook Bank has revealed.

The bank said its research had highlighted a "significant knowledge gap", with 35% of women aged between 55 to 68 unaware of potential tax implications, compared to 23% of men the same age.

The survey, of 2,011 UK consumers aged between 55 and 68, found that while almost 46% of near-retirees are aware they will face taxes in retirement, only a quarter (25%) are certain, and 22% are unsure but believe it is likely.

Shawbrook stated that its findings suggest many people "could be in for a rude awakening".

Under current plans, retirees can withdraw up to 25% of their pension pot tax-free, with a cap of £268,275, but the remainder is subject to income tax. However, with rising pension values and higher interest rates on savings, the risk of being taxed on retirement income is growing.

Shawbrook’s research also found that 77% of near-retirees view a savings account as an integral part of their retirement plan. With the personal savings allowance (PSA) frozen, however, many people may find themselves with unexpected tax bills on their savings.

For standard-rate taxpayers, the PSA is £1,000 but this drops to just £500 for higher earners, with additional-rate taxpayers receiving no allowance at all.

Head of savings at Shawbrook, Adam Thrower, said: "A shock tax bill is never welcome, especially for those planning or entering retirement. It's essential to understand that income tax still applies in retirement, and savers should consider how best to structure their savings.

"ISAs are a powerful way to keep savings tax-free, and with competitive interest rates, savers could be caught off guard by how much tax they owe if they don’t plan carefully."

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