This may or nay not be true but whether this was chicanery by the Exchequer of not, there is a lot of money that will not be paid as pension that was incentivised to be so.
I’m agreeing with James Jones-Tinsley. I’m not a colleague of Robert Hunschok but I wish I sat in on the discussions he talks aout! This is an argument that should make us sit up (like the shiny Lamborghini)!
Robert Hunschok
When George Osborne introduced Pension Freedoms in 2015, the reforms were sold as a victory for personal choice.
No longer would defined contribution pension savers be forced down the annuity route. Instead, from age 55, people could decide how and when to access their pension savings. The language of the reform was one of freedom, flexibility and empowerment.
At the time, however, there was a widely understood consequence. The Treasury was expected to receive a substantial proportion of future tax revenues sooner than it otherwise would have done. What nobody knew was quite how significant that windfall would become.
New analysis from Lumera, based on HMRC data, has revealed that £124.7bn has been taken as taxable flexible payments since 2015, with 61 per cent of that amount – £75.5bn – withdrawn by those below age 65. In total, some 2.4 million people first accessed taxable pension income before age 65.
These figures exclude tax-free cash and relate only to taxable pension withdrawals. They therefore provide a striking indication of the extent to which pension taxation has been brought forward.
The Great Acceleration of Tax Receipts
Before 2015, much of the tax embedded within defined contribution pension pots would have been collected gradually through retirement income over many years.
Pension Freedoms changed that dynamic. Millions of people gained access to their pension savings earlier than previous generations, allowing taxable withdrawals to occur long before traditional retirement ages.
While it is impossible to know precisely when those funds would otherwise have been withdrawn, the scale of taxable payments made before age 65 indicates a substantial acceleration of taxable income and, therefore, tax receipts.
More Than a By-Product?
It is difficult to separate the reforms from the wider political and economic context of the time. The Coalition Government was pursuing deficit reduction while advancing a philosophy that emphasised individual responsibility, reduced state intervention and greater consumer choice. Pension Freedoms fitted neatly within that agenda.
The fiscal implications were widely recognised by industry observers at the time. The question was never whether Pension Freedoms would accelerate tax receipts, but by how much.
More than a decade later, the answer appears to be: a lot.
The recent figures do not prove ministerial intent. They do, however, reveal the scale of a fiscal benefit that was entirely foreseeable at outset.
The Treasury’s Windfall
The £75.5bn withdrawn before age 65 suggests Pension Freedoms have delivered a substantial and immediate benefit to the Treasury. Whether the reforms prove equally beneficial for savers will only become clear over the decades ahead. If retirees have simply taken income earlier, both sides may ultimately gain. But if large-scale withdrawals lead to weaker retirement outcomes, today’s acceleration of tax receipts could come at the cost of lower future revenues and greater pressure on public spending.