New rules are boost for government
Treasury gets £880m tax windfall from ‘pensions freedoms’
Retirees whose pots were previously inaccessible to the taxman, are now able to withdraw lump sums on which they will pay tax.
As a result the government will receive an estimated £1.2 billion, or £880m more than it projected in the 2014 Budget.
Pensions consultancy Hymans Robertson believes that at least £6bn will be withdrawn from pensions by the end of the first year of the new arrangements.
This provides the Exchequer with an additional £1.2bn. Hymans also expects the pace of withdrawals to increase as pressure is applied to pensions providers to release funds and interest grows. There are also likely to be more retirees tempted to move their defined benefit, or final salary, schemes into policies they can access. Hymans says it has already seen an increase of 50 per cent in requests for transfer since 6 April.
The latest figures confirm expectations in the industry that the government factored in a degree of self-interest in setting up the new rules.
New restrictions on high earners’ tax relief on pension contributions are expected to boost government revenues further.
Hymans estimates that there is around £100bn of available money in the pension pots of the over 55s. Previously these individuals would not have drawn on any of this money until they chose to retire.