Tax gained from people taking advantage of pension freedoms has surpassed the original Government predictions.
Recently released Budget documents revealed that the Government had originally hoped to raise £300 million during 2015/16, rising to £600 million of 2016/17. The actual figure reached in 2015/16 was £1.5 billion, with the most recent estimate for 2016/17 growing to £1.1 billion.
Initial estimates, according to the document, were subject to “considerable uncertainty”.
It goes on to highlight that withdrawals were larger than predicted, leading to assumed timeframes being reduced.
“The original costing assumed individuals would spread their withdrawals over four years, but the latest HMRC information points to larger average withdrawals than we expected so we have shortened this assumption to three years.”
Where yield is concerned, the Government now predicts that this year will be the “peak year” as opposed to 2018/19 as previously thought.
The Treasury document goes on to state: “HMRC data also suggests the average tax rate on withdrawals might be higher than originally expected. Some individuals are taking larger amounts than they would have been able to purchase through an annuity, thereby creating a higher tax liability.”
It also highlights that in 2017/18, pension freedoms are predicted to bring in around £1.6 billion, which will fall to an annual £900 million for the remainder of the forecast.
Commenting on the higher than predicted figures was Andrew Tully. The pensions director from Retirement Advantage stated: “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.”
