Retirees paying billions more in tax than previously thought

Published by Rachel Lacey on 02 May 2019.
Last updated on 02 May 2019

One in nine defers state pension

Royal London is accusing the government of ‘sneaking out’ figures which show that pensioners are paying £4 billion in year more in tax than had previously been thought.

Figures released on 30 April showed that in the tax year 2017/18, UK pensioners paid £18.4 billion in tax, up from £17.9 billion the previous year.

However, in the small print the government admits that the method being used to calculate pensioner tax receipts has changed.

Rather than using a sample survey, the government now uses real-time information provided by pension companies.

The footnote did not, however, say that this new method adds approximately £4bn a year to the government’s estimated figures for income tax paid by pensioners.

This was spotted by Michael Johnson, research fellow at the Centre of Policy Studies – who noticed that when the figures for 2016/17 were published at the start of 2018, they claimed that pensioners had only paid £13.5 billion, more than £4 billion less than the current estimation.

Further analysis conducted by Royal London also showed that the overall cost of pensions tax relief (that is the difference between tax saved by paying into a pension and the tax paid by pensioners) is £5 billion lower than previously estimated, undermining the Chancellor’s comments that tax relief is “eye-wateringly expensive”.

Commenting on the analysis, Steve Webb, director of policy at Royal London says: “It is outrageous that the government has sneaked out these massive revisions to the figures for the amount that pensioners pay in tax without any comment. 

"It turns out that pensioners are paying more than £4 billion extra in tax on their pensions than the government previously admitted.  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.”

Moneywise has approached HMRC for comment and will update this piece when we receive a reply. 

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