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Govt tax take on pension freedoms increases by almost £2bn

Pensions-savings-retirement-piggy bank

Tax raised from people making use of pension freedoms has exceeded initial Government estimates for 2015/16 and 2016/17 by £1.7bn.

According to Budget documents released yesterday, the Government initially estimated it would raise £300m in 2015/16 and £600m in 2016/17. However, £1.5bn was actually raised in 2015/16 and the latest estimate for 2016/17 is £1.1bn.

The document says initial estimates were subject to “considerable uncertainty”.

It says: “The original costing assumed individuals would spread their withdrawals over four years, but the latest HMRC information points to larger average withdrawals than we expected so we have shortened this assumption to three years.”

The Government is now expecting this year to be the “peak year” of yield rather than 2018/19.

The document adds: “HMRC data also suggests the average tax rate on withdrawals might be higher than originally expected. Some individuals are taking larger amounts than they would have been able to purchase through an annuity, thereby creating a higher tax liability.”

The Treasury document says pension freedoms are now expected to bring in £1.6bn in 2017/18 and around £900m each year for the remainder of the forecast.

Retirement Advantage pensions technical director Andrew Tully says: “This is a tax bonanza for the Treasury and although a welcome boost to Government coffers, will have been a nasty surprise for many people taking advantage of the new freedoms. Paying tax on withdrawals was seen at the time as a natural brake on withdrawing too much too soon but this clearly hasn’t been the case.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Does anyone now believe this was all about “freedom” and giving control to people?
    Nothing but a cynical Tax Grab now, instead of annuity revenue to HMRC
    I wonder who is going to plug the tax deficit in future years?

  2. @BC – whilst I agree with your sentiment, it’s the consumer who opted to pay all the tax up front (and no doubt pay more that if the income was paid ‘on the drip’).

    In reality, our advised clients are paying no more (and most are paying) less tax than they would have done pre-freedoms and it’s also helping people align income to objectives.

    Having said all of that, I do hope the Treasury has got it’s long term annuity tax take projections correct!

  3. Pension Wise …. “Free and impartial government guidance to help you understand what you can do with your pension pot”

    Responding to the initial consultation for paying for Pension Wise, I suggested that HMRC were easily going to be the main beneficiary of these pension flexibilities with the considerable estimated tax take and therefore HMRC should be paying wholly for Pension Wise.

    Surprise Surprise !! the tax take is even greater than anticipated. !!

  4. The tax take, (at emergency rate) was also just before the 2015 election, with any refunds after the election.

    Surprise surprise.

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