Pensions - Articles - Government accused on pensioners paying billions more in tax

The Government has been accused of ‘sneaking out’ figures which reveal Britain’s pensioners are paying £4 billion a year more in income tax on their pensions than had previously been thought.

 The accusation has been made by Royal London Director of Policy Steve Webb, following the publication of annual figures by HMRC on the cost of pension tax relief.

 Figures up to 2017/18 were published this week (Tuesday 30th April) and showed that pensioners paid £17.9 billion in income tax on their pensions in 2016/17 and £18.4 billion in 2017/18. However, in the small print of the Table (PEN6: ) it said that the measurement of tax being paid by pensioners had been changed. Instead of using a sample survey, the figures are now based on ‘real time information’ supplied by pension schemes. 

 What the footnote did not say is that this more reliable method adds around £4 billion per year to the estimated amount of income tax being paid by pensioners. This point was spotted by Michael Johnson, Research Fellow at the Centre of Policy Studies who pointed out that when the figures for 2016/17 were last published – in February 2018 – they reported that pensioners had only paid £13.5 billion – over £4 billion less than is now estimated. Last year’s publication is still available in an online archive

 Further analysis by Royal London shows that the overall cost of pension tax relief (the difference between the tax saved this year by people contributing to a pension and the tax paid by today’s pensioners) is more than £5 billion lower than previously thought. This undermines the Chancellor’s claims that the cost of tax relief is ‘eye-wateringly expensive’ and needs to be further cut.

 Commenting on the huge revisions to the official figures, Steve Webb, Director of Policy at Royal London said: It is outrageous that the Government has sneaked out these massive revisions to the figures for the amount that pensioners pay in tax without any comment. It turns out that pensioners are paying more than £4 billion 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.

 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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