Taxman could pocket £700m from new pension freedoms

The taxman could rake in as much as £700 million this tax year as thousands of Brits rush to access their pension cash.

As of April, anyone aged 55 and over have been able to access all or part of their pension pot, rather than taking out an annuity at retirement.

It's believed as many as 60,000 people took advantage of the new rules in the first two months alone, providing the Treasury with a massive income tax boost.

They had initially expected to pocket around £320 million during the 2015/16 tax year. However, research conducted by Hargreaves Lansdowne for the BBC, shows that figure is likely to be around £700 million.

Just bringing tax receipts forward

That will no doubt provide a boost to chancellor Osborne as he seeks to tackle the national deficit, But as Hargreaves' head of pensions research Tom McPhail points out, this isn't a case of generating new revenue, rather bringing forward revenue that would have been available in the future.

"It looks as if the chancellor could be in for a handy windfall, thanks to his pension reforms," McPhail told the BBC.

"It is important to bear in mind, though, that this will simply bring forward tax revenues and consumer spending which would otherwise have been paid out over the years and decades to come.

"It also underlines the importance of maintaining a stable pension system which continues to encourage and reward responsible long-term savings habits."

Spending plans

So what are those who access their pension spending their cash on? A survey by Hargreaves found that a third wanted to use it to provide an income and meet general living expenses, while almost a quarter wanted to reinvest it in an ISA.

Unsurprisingly a holiday was the next most common reason for taking cash, followed by home improvements.

This isn't a huge surprise, as these large one-off costs are most likely to prove a struggle for those on a pension, so the ability to access a lump sum to pay these bills will be very useful.

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