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Govt to bag extra £880m from pension freedoms

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The Government is set to receive £1.2bn in tax receipts as a result of the pension freedoms, £880m more than it projected in the 2014 Budget.

Pensions consultancy Hymans Robertson estimates that at least £6bn will have been taken out of pensions by the end of the first year of the new freedoms.

This translates to £1.2bn in extra tax for the Exchequer, far higher than the £320m originally earmarked and the 2014 Autumn Statement upward revision of £415m.

Hymans says it expects the pace of withdrawals to increase as providers “respond to Government pressure” and administrative processes are streamlined. It adds growing interest in defined benefit transfers will boost withdrawals further.

The Conservative manifesto also outlined proposals for limiting high earners’ tax relief on pension contributions. In addition, the lifetime allowance is due to drop to £1m from April 2016. Hymans says the impact of this, combined with extra revenue resulting from the freedoms, will boost Treasury coffers by around £3bn.

Hymans Robertson partner Chris Noon says: “Now that we have freedom and choice in pensions, the usual £10bn to £15bn of ‘retiring’ money will be taken out faster than it previously was due to the relative unpopularity of annuities. In other words, the money is less likely to be invested in an income stream for life. Instead the withdrawals are likely to be ‘front loaded’.

“Second, there is around £100bn of available money in the pension pots of the over 55s. We have assumed that 5 per cent of these funds (around £90bn) are withdrawn over the year (around £4.5bn). Previously these individuals would not have drawn on any of this money until they chose to ‘retire’.”

He adds: “Finally, we expect to see some individuals with DB pensions converting some or all of this benefit to a DC fund. They will then typically draw this money much faster than the DB benefit would have been paid. We’ve already seen an increase of 50 per cent in requests for transfer since 6 April.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Charges for accessing pensions has been in the news recently. MPs are complaining about the exorbitant costs. Quite frankly I am horrified at some of the charges being imposed on clients who want to accept an immediate vesting CETV. It is an absolute disgrace, a scam. The pension transfer qualification in itself belongs to a different world. The exam knows nothing of pension freedom, and looking at the work some of these firms say they have to do to advise on immediate vesting is laughable. The rule that only G60 qualified firms can advise on this type of business should be scrapped.

  2. Couple that with the 1.4 billion fine money he has nicked, nice little war chest and should buy in a few more voters !!

    Pity its good honest people who continue to pay and be penalised ? but hey what does George care you have to be in it win it (as they say)

  3. Ken Durkin – G60 IS ancient history. Much as I loath contributing to the coffers of the CII, RO8 now is a necessary addition I feel

    • G60 is a general term. AF3 is the later qualification. Neither qualification is any use whatsoever when it comes to advising on immediate vesting. The only skill you need is basic arithmetic to know whether it is worthwhile transferring the cash into a SIPP.

  4. Exchequer 1 – Pensioners 0

  5. I am sure that if there were a no liability advice process for pension freedoms then costs would be minimal. Unfortunately in the real world people get selective memory and go to the claims chasers, and fraudsters dump the cost onto honest advisers. You cannot have it both ways, in this country consumer protection carries a high cost, which is not the fault of advisers trying to work within the rules.

    I suspect that R08 will be a mandatory top up to maintain the Tramsfer Specialist licence, or something like it.

  6. Richard Clinton Green 29th June 2015 at 1:42 pm

    Before everybody complains about paying tax on the fund, would you really think that the old system using annuities was really the best option for clients funds because that was the other choice? It was taxable too so all the rubbish about paying tax and war chests does seem very limited in thought and imagination.

  7. Yes, yes we know. (Or at least some of us do).

    That was the whole purpose of these ‘freedoms’. On a cost benefit analysis – how much will the benefits bill be in years to come when these spendthrifts need supporting by the state? I’ll bet it will be significantly more than £1.4 billion.

  8. The rise in basic state pension will take people out of qualifying for benefits if they spend their pensions. Any financial adviser opposed to pension freedom is simply not fit to be a financial adviser.

  9. It is a little worrying when a firm of actuaries, thinks that the overall tax rate paid on the funds withdrawn will only be an average of 20%.

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