Tax windfall from pension changes

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Changes to the pension system, allowing people to cash in their savings, will provide an extra tax windfall for the Treasury, research suggests.

Since April, those aged 55 and over have been able to take their pension pot in cash, rather than buy an annuity to provide a retirement income.

Taking pension savings in one go could lead to a significant income tax bill.

Such income tax revenue this year is expected to be more than double the amount predicted by the Treasury.

It forecast an estimated £320m would have landed in the Treasury's coffers in 2015-16.

Yet tax is actually likely to bring in an extra £700m over the year, research for BBC News from Hargreaves Lansdown suggests.

Pension changes 2015

Some pensioners have used cash from their pension pots to pay for holidays and cars.

The resulting tax revenue, which is brought forward from later years, will be welcome for Chancellor George Osborne as he tries to make savings, to be outlined in Wednesday's Budget.

"It looks as if the chancellor could be in for a handy windfall, thanks to his pension reforms," said Tom McPhail, head of pensions research at Hargreaves Lansdown.

"It is important to bear in mind, though, that this will simply bring forward tax revenues and consumer spending which would otherwise have been paid out over the years and decades to come.

"It also underlines the importance of maintaining a stable pension system which continues to encourage and reward responsible long-term savings habits."

The original estimates when the pension reforms were first announced were for extra tax revenue totalling £320m going to the Treasury in 2015-16, rising to £1.2bn in 2018-19.

The Treasury said that the fact some 60,000 people had accessed £1bn of money from their pension pots was evidence that the reforms were a success in allowing people to control their own savings.

Pension Calculators

State pension calculator DWP

Combined state, workplace and DC calculator, from Standard Life

Should I delay buying an annuity? Hargreaves Lansdown

How much can I earn from a DC pot? Money Advice Service