The Government predicts 130,000 people every year will make use of new pensions flexibilities announced in the Budget.
Analysis published yesterday alongside the draft pension tax rules show the Treasury expects to pocket an extra £3.8bn over five years as a result of the new freedoms, which could see savers incur higher income tax bills when they take pension benefits.
It expects to take £320m in 2015-16 and £600m in 2016-17. Figures project £910m, £1.2bn and £810m for the years to 2020.
The Government’s projections show the rate of return from the pension reforms gradually declining until 2030, when increased use of pension tax relief sees the net impact on Government funds shift into the red.
Costing notes form the Government read: “This measure results in increased income tax receipts in each year until 2030. After that, a small reduction in tax receipts of around £300m a year is expected in steady state. This is small in comparison to the impact of all the Government changes on pensions, designed to ensure pensions provision is sustainable with an ageing population.”
It says around 5,000 people a year are accessing pension income flexibly under the existing regime, which required a minimum annual pension income of £12,000 – £20,000 before March 2014 – in order for an individual to access flexible drawdown.
Its estimate that 130,000 people will use the new flexibilities is based on an assumption 30 per cent of an eligible population of 400,000 make use of the new rules.