Royal London director of policy Steve Webb has accused the government of “sneaking out” figures revealing pensioners are paying £4bn a year more in income tax on their pension than had previously been thought.
Figures up to 2017/18, published earlier this week, showed pensioners paid £17.9bn in income tax on their pensions in 2016/17 and £18.4bn in 2017/18.
A note accompanying the data, however, said the measurement of tax being paid by pensioners had changed. Instead of using a sample survey, as was previously the case, the figures are now based on ‘real-time information’ supplied by pension schemes.
According to Webb (pictured), what the small print did not mention was that the new method had added some £4bn per year to the estimated amount of income tax being paid by pensioners. When the figures were last published in February 2018, they reported that pensioners had paid out £13.5bn – more than £4bn less than now estimated.
Further analysis by Royal London found the overall cost of pension tax relief – that is, 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 £5bn less than previously thought.
Webb argued this undermined Chancellor Philip Hammond’s claims that the cost of tax relief was “eye-wateringly expensive” and needed to be further cut.
“It is outrageous the government has sneaked out these massive revisions to the figures for the amount that pensioners pay in tax without any comment,” said the former pensions minister.
“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.”