Budget 2017 comment on pension freedom 'tax bonanza'
The Treasury has admitted the pension freedoms announced in March 2014 Budget and implemented in April 2015 have raised far more tax than anticipated.
It was initially estimated to raise around £0.3 billion in 2015-16 and £0.6 billion in 2016-17, although the estimates were subject to considerable uncertainty. In the event, the measure has raised far more than anticipated – £1.5 billion in 2015-16, while the latest estimate for 2016-17 is £1.1 billion.
The original costing assumed individuals would spread their withdrawals over four years, but the latest HMRC information points to larger average withdrawals than were expected. Some individuals are taking larger amounts than they would have been able to purchase through an annuity, thereby creating a higher tax liability.
Andrew Tully, pensions technical director, Retirement Advantage commented: ‘This is a tax bonanza for the Treasury and although a welcome boost to government coffers, will have been a nasty surprise for many people taking advantage of the new freedoms. Paying tax on withdrawals was seen at the time as a natural brake on withdrawing too much too soon but this clearly hasn’t been the case.’