Talking Point  

Pension freedoms tax grab is 50% more than original estimate

Pension freedoms tax grab is 50% more than original estimate

Hundreds of thousands of savers have cashed in £9.2bn from their pension pots since pension freedoms were introduced in April 2015.

According to Richard Parkin, head of pensions policy at Fidelity International, this means the tax revenue is 50 per cent more than what official government estimates originally anticipated. 

Mr Parkin did, however, highlight that these are just tax revenues brought forward and these numbers will fall in the future.

He said: "The statistics released by HMRC today (25 January) show that pension freedom continues to generate significant revenues for government. 

"So far in this tax year, we have seen £500m more of payments made than in the whole of the last tax year, which was also ahead of expectations. 

"If the current rate of payments is maintained we’ll be looking at an increase of nearly 50 per cent in the value of payments made to a whopping £6.4bn with a corresponding boost to tax revenues."

Because HMRC don’t release details of tax-rates, Mr Parkin said it is difficult to assess exactly what the tax take will be but last year’s payments were estimated to have generated £200m more than the original budget policy costing which promised a £320m boost suggesting a net tax benefit of £520m for tax year 2015 to 2016. 

If tax were payable at the same rate on this year’s payments then Mr Parkin said it seems the government could be looking at around £900m of additional tax revenue from the policy against their initial estimates for this tax year of around £600m so beating their policy costings by around 50 per cent.

Mr Parkin said: "Pension freedom is hugely popular with consumers but is clearly benefitting government too. By any measure it looks like the revenue is set for an even bigger tax benefit from pension freedom than they’d originally expected - perhaps as much as 50 per cent higher. 

"But it’s important to remember that, for the most part, pension freedom is just bringing forward tax receipts from the future to today. 

"The more flexible payments that are taken today, the less will be taken in the future so reducing future tax revenues. In the long run this policy will likely have a negative impact on government finances but in the meantime it’s delivering a welcome boost."

HMRC reported more than 1.5 million payments have been made using pension freedoms, with 162,000 people accessing £1.56bn flexibly from their pension pots in the last three months.

Economic secretary to HM Treasury Simon Kirby, said: "Giving people freedom over what they do with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do. 

"These figures show that people continue to take advantage of the choices on offer: choices ‎only made available since the government’s landmark pension freedoms were introduced in April 2015.