The Treasury has taken £500m less in taxes from the pension freedom reforms than initially forecast.
The figure was revealed in the latest report from the Office for Budget Responsibility (OBR), published alongside the Budget on Wednesday (22 November).
The pension freedoms implemented in 2015 gave savers with defined contribution pensions the option to withdraw their funds from age 55, subject to tax paid at their marginal rate rather than the 55 per cent charge previously in place.
The OBR had initially estimated a tax take of about £0.3bn in 2015-16 and £0.6bn in 2016-17. But in a report in March it revised its figures up to an estimated tax take of £1.6bn in 2017-18, £1.1bn in 2016-17 and £1.5bn in 2015-16.
It explained the freedoms had raised “far more than anticipated” as people were withdrawing larger average amounts than expected while some were taking larger amounts than they would have been able to purchase through an annuity.
In its latest paper published in November however, the OBR said tax receipts would in effect be £500m lower than its March forecast.
“Tax from occupational pensions has been weaker than expected, with tax from pension flexibility withdrawals flat on a year earlier, around £0.5bn lower than our March estimate. This may reflect individuals spreading their withdrawals over a shorter period than we had previously assumed,” it said.
Dobson and Hodge financial services director Paul Stocks said: “In the first year of freedoms [HMRC] probably took more tax than they were expecting largely because of a rush at the start but that has calmed down.
"Now it’s 55 year olds or clients who decided to [withdraw cash] later on as part of their planned tax strategy, which is probably more tax efficient.”