PensionsNov 6 2015

Freedoms tax take could be double gov’t forecast: OMW

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Freedoms tax take could be double gov’t forecast: OMW

The Treasury could have taken more than double its original projection in the tax it expected to raise through the pension reforms, a pensions specialist has claimed.

Figures from HMRC showed more than £2.7bn had been taken from pensions in flexible payments since 6 April.

The amount has decreased from £1.5bn in the second quarter of 2015 to £1.1bn in the third quarter.

The government’s impact assessment of the pension reforms suggested an additional Treasury revenue of £320m for tax year 2015/16.

But Jon Greer, pensions technical specialist at Old Mutual Wealth, said this could end up being around £800m.

He said: “While this figure may not actually come as a complete surprise to the Treasury it should serve as a timely reminder to anyone looking to access his pension that one of his first considerations should be the amount of tax he may pay.

“There are a number of different approaches one can take to withdrawing pension savings that can reduce the amount you will ultimately pay. All it takes is a little forward planning.”

In the most recent quarter, 130,000 payments were made to a total of 81,000 people.

This compares to 121,000 payments made to 84,000 people in the previous quarter.

The ABI has released figures which suggest that six months into the reforms, 80 per cent of cash lump sum withdrawals were made by people who had not reached the age of 65.

The figures also showed that in 95 per cent of cases where savers accessed a cash lump sum, they withdrew the entire fund.

Yvonne Braun, director of long-term savings policy at the ABI, said the figures showed the British public was using the freedoms sensibly.

She said: “The changes that came into effect on 6 April revolutionised the world of retirement savings. Now the country needs to ensure as many people as possible can make the most of them.

“Giving individuals greater power over their pension pots should encourage more people to put money aside for their retirement.”

One area which may turn out worse than forecast is defined benefit transfers, where the Treasury predicted a tax take of £90m, but so far advisers have been reluctant to sign them off.

In August HMRC projected total revenues of £3.86bn from the year 2015/16 up to and including 2019/20 from tax generated by “pensions flexibility” announced in the Budget in March.

HMRC also predicted that approximately 650,000 people could use flexible pension arrangements over the five-year period.

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