Pension freedoms have widely been portrayed as a positive move for UK citizens. While this is correct, the income tax being generated from the pension…
Pension freedoms have widely been portrayed as a positive move for UK citizens. While this is correct, the income tax being generated from the pension freedoms is extremely high, with the government seeing windfalls within the first year.
Under the freedoms, individuals can now take as much as they like out of their defined contribution pension pots from as early as age 55. However, after the first 25 per cent – which is currently tax-free – the rest is taxed at the individual's 'marginal' income tax rate, which can be as high as 45 per cent.
A publication by Aegon has highlighted the windfall the Chancellor is already receiving from the pension freedoms he announced in his Budget two years ago and which went live last April.
Aegon’s intervention comes after a Freedom of Information request revealed that another of the Chancellor’s pension tax changes, that has chipped away at the total amount which can be held tax-free in a pension, has generated almost £100 million in additional tax revenues.
Steven Cameron, regulatory strategy director at Aegon, said: "The Chancellor’s pension freedoms have been widely welcomed as offering pension savers unfettered access to their retirement savings from as early as age 55. However, many of those who have taken advantage of them will also have done their bit to help close the Chancellor’s Budget deficit."
It's expected that further changes might be made by George Osborne in his Budget in March this year.
"Any moves in the forthcoming Budget to further reduce tax relief on future pension contributions would represent a third tax grab on pension savers," Mr Cameron said.