According to recent figures revealed by HM Revenue & Customs (HMRC), pensioners are paying around £4 billion a year more in income tax than previously thought because of an error.
In the financial year to April 2017, a total of £17.9 billion was raised by the Government as they taxed retired people’s private and workplace pensions. However, this figure has been revised up from an estimate of £13.5 billion because HMRC has started to use more reliable methods of calculating payments.
According to a note which accompanied the data, the measurement of tax paid by pensioners 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.
The revised figure highlights the contribution made by pensioners to the public finances and has been promoted by campaigners trying to protect the tax relief workers get when paying into a pension.
Michael Johnson from the Centre of Policy Studies originally proposed the revision to the way figures are worked out. He noticed a discrepancy in the figures for 2016/17 and February 2018, which showed that pensioners had only paid £13.5 billion, which was over £4 billion less than is now estimated.
Former Pensions Minister Sir Steve Webb has accused the Government of “sneaking out” the revision to the figures for the amount that pensioners pay in tax without any comment.
As he points out, the revised figures also show that the cost of tax relief on pension contributions is much lower than thought. Therefore, the Chancellor must “revisit any thought of cutting help for pensions in the Budget later in the year”.
To find out more about how Kirk Newsholme Financial Planning can help, please contact Richard Leonard at Richard.Leonard@knfp.co.uk or by calling 0113 204 4215.