New research from Bank of Scotland Investment Service reveals that almost half of those surveyed who had yet to retire are not planning to take a tax-free cash lump sum from their pension fund on retirement.

The amount of cash you can take from your pension as a tax-free lump sum varies with some pensions not currently allowing any lump sum to be taken. From 6 April 2006, A-Day, new pension simplification rules come into force and people will be able to take up to a quarter of their pension fund as a tax-free cash lump sum.

Annuity rates are relatively low and are forecast to remain at these levels therefore the ability to take up to 25% of a pension fund as cash could give future pensioners the ability to increase their income through re-investment. By taking the maximum tax-free lump sum available they can invest for income and have the added benefit of access to their capital.

Research undertaken by NOP World on behalf of the Bank of Scotland Investment Service reveals that almost half (49%) of those who have yet to retire are not even planning to take advantage of this tax-free cash.

Of those in the pre-retirement years aged 55-64, who are perhaps more focused on retirement issues, over a third (37%) still have no plans to take the lump sum.

Of those people surveyed who are looking forward to taking their tax-free lump sum the most popular plans for the money are:

• Special holiday - 15%
• Investing it - 8%
• Paying off debts - 6%

Of those people surveyed who had already retired, 57% took a lump sum, with the most popular uses for the cash being:

• Investing it - 52%
• Savings account - 29%
• Day to day expenses - 17%
• Paid off debts - 13%
• Holiday - 11%
• Gave to family - 10%

Alan Jones, head of Bank of Scotland Investment Service, said: "A-Day will bring about a number of significant changes to pension rules and it is essential that all those with pension funds are aware of how they personally will be affected."

"Some people may find that they currently have a pension that entitles them to take more than a 25% tax-free lump sum and they need to take action now to protect this benefit. To maximise retirement income people need to consider all their investment options and take professional advice when necessary."