Retirees taxed £4bn more than previously thought

Pensioners are paying around £4 billion more in income tax than previously estimated, the Centre for Policy Studies (CPS) has claimed.

The latest figures published by HMRC show that pensioners paid £17.9bn in income tax on their pensions in 2016/17, which increased to £18.4bn in 2017/18.

A footnote in the paper said the method for estimating pension tax figures had changed, using real-time information supplied by pension schemes instead of a sample survey.

Michael Johnson, research fellow at the CPS, said this added an extra £4bn to the estimate for 2016/17, compared to the last time the figures were published in February 2018.

Further analysis by Royal London claimed the overall cost of pension tax relief is more than £5bn lower than estimated.

The mutual insurer said this contradicted comments from Chancellor Philip Hammond in the lead-up to Budget 2018 that pension tax relief is “eye-wateringly expensive” for the Treasury to provide.

Steve Webb, director of policy at Royal London, said:

“The Government has sneaked out these massive revisions to the figures for the amount pensioners pay in tax.

“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 the cost of tax relief on pension contributions is much lower than thought.

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

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