Published alongside the Budget yesterday, the Office for Budget Responsibility (OBR) revealed its fiscal outlook, which said the Treasury will net an extra £400m in tax as a result of people paying tax on their pension withdrawals.
Based on the Spring Budget 2017 costings, which factored in a tax take of £900m in 2018/19, the fiscal outlook from the OBR suggested a near 50 per cent increase in revenue raised from the policy this year to £1.3bn, taking the total tax generated by pension freedoms to £5.5bn.
Commenting, AJ Bell senior analyst Tom Selby said: “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 noted that the extra £400m in tax came due to “earlier cohorts drawing down their pensions for longer”, which Selby said could be explained by “buoyant stock markets” allowing savers to take income from their pensions for longer than expected.
“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,” Selby concluded.
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