HMRC have published figures showing that in the period from April to June, inclusive of 2015, £1.5 billion of pension payments were made under the new Flexibility Rule. In the period August to the end of October, an additional £1.2 million was paid for a total of £2.7 billion. We estimate, somewhere between two thirds and three quarters of a billion of extra tax has been paid, supported by other analysis of these withdrawals.
Whilst the new pension freedoms allow an individual to take out what they want, when they want, from their pension, over the age of 55, only the first 25% of any withdrawals will be free of taxation. As the additional tax paid is at marginal rates, there is significant risk of paying higher rates of tax, which can be anything between 40% and 60%.
There is no doubt in my mind that this is part of the reason for the “freedom and choice” legislation that was introduced but this significant revenue, which is in addition to the other income tax revenues from pensions over the course of the year will no doubt have provided a welcome boost to the Treasury’s coffer.
It is sad and unfortunate that many of the individuals who are making these withdrawals feel they have no choice as this effectively becomes an additional tax paid by those well off, as many of our wealthier, and well advised clients will be aware of these tax penalties and actually endeavour defer taking their private pension as late as possible due to the valuable protection a pension fund has from income, capital gains and inheritance taxes. If you are considering withdrawing your pension under the new Freedom rules we would encourage you to take professional advice and would be willing to bear the cost of an initial discussion, at your convenience, You can get in contact using the contact link above, or calling 01883 332261.