Savers cashing in their pension pots has led to the government raking in almost twice the tax it estimated the new pensions freedoms would generate. Experts expected that people withdrawing cash from their pensions would spread the withdrawals – but savers have taken bigger amounts in one go, leading to more cash in the Treasury’s coffers.
Since April 2015 pension savers have had much more freedom about what they do with their defined contribution pension savings. From the age of 55 they can take the money as cash, buy an annuity, use income drawdown, or combine two or more of the options. Savers can withdraw 25 per cent of their pot tax-free while other withdrawals are taxed at the saver’s marginal tax rate.
The Treasury expected pension flexibility to raise £0.3bn in 2015/16 and £0.6bn in 2016/17. But actual tax receipts were much higher: £1.5bn in 2015/16 and £1.1bn in 2016/17.
The figures were published in policy documents released alongside last week’s Budget.
Comments
Join the debate for just $5 for 3 months
Be part of the conversation with other Spectator readers by getting your first three months for $5.
UNLOCK ACCESS Just $5 for 3 monthsAlready a subscriber? Log in