HMRC’s latest flexible payment data, released this morning, makes interesting reading. First, a quick update on the background.
In his March 2014 Budget Statement, the then Chancellor of the Exchequer George Osborne liberalised the pensions regime by allowing individuals aged 55 and over to access their defined contribution pension savings as they wish, subject to their marginal rate of income tax. The new rules came into force on 6 April 2015.
This was not an entirely altruistic measure. The Chancellor estimated that people who took advantage of this new regime would pay additional tax as follows:
HMRC publishes quarterly figures showing how many people are taking flexible payments. During 2015/16, 232,000 individuals took payments worth £4.35bn. In the first quarter of 2016/17 alone, 159,000 people took payments worth £1.77bn. Clearly, word is spreading that – if they didn’t mind paying the extra tax – people can access funds held in their defined contribution pension plans and spend the money on whatever they like.
Against that background, HMRC’s latest flexible payment figure, released this morning, make interesting reading.
What do the latest figures show?
The latest figures show that, in the three months from 1 July 2016 to 30 September 2016, 158,000 people took payments worth £1.54bn.
What’s the trend?
Upwards, but not as fast as might have been expected. Total payments taken between 6 April 2015 and 30 September 2015 totalled £2.73bn. Payments for the period 1 April 2016 to 30 September 2016 amounted to £3.31bn, an increase of 21 per cent.
Why does it matter?
Clearly the idea of taking flexible payments is catching on, with some people doing so on a regular basis. It’s too early to tell whether George Osborne’s tax projections are accurate, because after a brisk start the rate of growth is less than the year-on-year increase of 87 per cent implied by the Treasury Red Book tax estimates. Nevertheless the upward trend in payments suggests that this will be a nice little earner for the Exchequer for years to come. Let’s hope people don’t overdo it now, so increasing the benefits bill which the State will have to fund later.
Are people rushing to take payments in case Philip Hammond scraps the regime?
There’s no evidence of this. Despite concerns that pension fraud increased by 150 per cent in the wake of Mr Osborne’s pension freedoms, the new Chancellor of the Exchequer Philip Hammond has not yet signalled an end to flexible payments although he has scrapped the idea of a market for secondary annuities.
If you have any questions, please contact George Bull or your usual RSM contact.