Govt ‘sneaks out’ change leading to £4bn pension tax bill increase

The government has been accused of “sneaking out” changes in the way income tax on pensions is measured that could lead to pensioners paying an extra £4bn a year, according to Royal London.

Figures released earlier this week (30 April) by HMRC showed that pensioners paid £17.9bn in income tax on their pensions in 2016/17 and £18.4bn in 2017/18.

However, when the figures for 2016/17 were first published in February 2018, it reported that pensioners had only paid £13.5bn in income tax on their pensions, over £4bn less than is now estimated.

This is due to the change in the measurement of tax, which is now based on ‘real time information’ supplied by pension schemes, rather than a sample survey as was previously used.

Royal London director of policy, Steve Webb, has said that it is “outrageous” that the government had “sneaked out these massive revisions” to the way pensioners' tax payments are measured without any comment.

He continued: “It turns out that pensioners are paying more than £4bn extra in tax on their pensions than the government previously admitted.

“It is clear that pensioners who have worked hard and saved hard are putting billions extra back into the economy through the tax on their pensions.”

Analysis from Royal London also found that the cost of pension tax relief is more than £5bn lower than previously estimated, which it claims “undermines” the Chancellor’s assertion that the cost of tax relief is “eye-wateringly expensive” and need to be cut further.

Webb added: “The revised figures also show that the cost of tax relief on pension contributions is much lower than thought.

“The Chancellor must now revisit any thought of cutting help for pensions in the Budget later in the year.”

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