Pension freedoms allow people over the age of 55 to withdraw any amount from their personal, stakeholder and some workplace pensions.

The first 25% lump sum withdrawal is tax-free while the remainder will be subject to income tax at the individual’s highest marginal rate.

But according to research by Legal & General, 27% of people think they can access their pension pot completely tax-free, meaning they’re opening themselves up to unplanned tax bills.

The survey of 2,000 over-55s also revealed that 21% would be ‘shocked’ at having to pay tax on their pension pots. However, of those who did expect to get some or all of their pot tax-free, 37% thought they wouldn’t have to pay tax on lump sums greater than the 25% tax-free sum.

But those approaching retirement are revealed to be cautious when it comes to their retirement savings as they don’t want to take risk in order to get a better return as pensioners.

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Three-quarter said they wouldn’t take up an investment opportunity to double their money for double the risk while 46% said they wouldn’t take any risk with their pots.

For 73%, they would avoid taking ‘big risks’ with their life savings.

Emma Byron, managing director, Legal & General retail retirement income, said leaving important decisions about later life to the last minute could potentially leave you poorer in retirement.

“It might even put the hard-earned pension pot you’ve built up during your working life at risk. Many customers don’t know about some of the fundamental factors that can impact how much money we have in retirement. Tax is one of these.

“Making retirement planning easier to understand and supporting consumers with good advice is crucial. The guidance and information people use needs to be clear and jargon-free, and we must engage customers more and encourage them to take financial advice.”