The Office for Budget Responsibility’s fiscal outlook, published alongside yesterday’s Budget, reveals a significant upgrade in the estimate pension freedoms tax take for 2018/19.
Page 113 of the OBR report (https://cdn.obr.uk/EFO_October-2018.pdf) says the Treasury will net an extra £400million in tax as a result of people paying tax on their retirement withdrawals.
Based on the Spring Budget 2017 costings* – which factored in a tax take of £900million in 2018/19 – this suggests a near 50% increase in revenue raised from the policy this year to £1.3billion, taking the total tax generated by the policy to £5.5billion.
Tom Selby, senior analyst at AJ Bell, comments:
“The whopping £13billion cut in the OBR’s borrowing forecast for this year wasn’t the only windfall to land in the Chancellor’s pocket yesterday.
“Buried in the OBR document is a revelation the Exchequer will net a cool £400million more than expected from the taxation of pension freedom payments in 2018/19.
“The OBR says this is because ‘earlier cohorts are drawing down their pensions for longer’. This could be explained by the fact buoyant stock markets have allowed savers to take income from their pensions for longer than expected. Alternatively, the OBR’s initial guess may simply have been wrong.
“Either way, there is no doubt the policy has been hugely successful from the Treasury’s perspective, both in boosting the attractiveness of pensions and raising additional tax revenue.”
*See B.23 of Spring Budget 2017 policy costings document: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/597335/PU2055_Spring_Budget_2017_web_2.pdf
The Treasury's £5.5billion pension freedoms tax bonanza
|
Year |
Tax raised (£billions) |
|
2015/16 |
1.5 |
|
2016/17 |
1.1 |
|
2017/18 |
1.6** |
|
2018/19 |
1.3** |
**Tax take for 2017/18 and 2018/19 based on latest estimates
