One of the biggest beneficiaries of the pension freedoms introduced last year is set to be Her Majesty’s Revenue and Customs as savers rush to release £6bn from pension pots.
New figures from the Office for Budget Responsibility suggest the Treasury will net a windfall of £900m by April from tax paid by people accessing their pension savings in the first year of pension freedom – almost a third more than had previously been expected.
The pension rules changed last April meaning any direct contribution savers over the age of 55 could have unfettered access to their cash.
The Association of British Insurers (ABI) calculates that £3bn was paid out as lump sums to just over 213,000 people in the first nine months following the reforms and another £2.9bn was taken through income drawdown plans.
HMRC treats any income taken as if it were an annual income, pushing some savers into a higher income tax bracket when withdrawing large chunks.