A surge in the number of people pulling money out of their retirement funds will give George Osborne a £700m windfall this year, more than double the sum predicted at last year’s budget, when the new pension freedom rules were first announced.
Financial adviser Hargreaves Lansdown said analysis of current trends showed that around 450,000 people will pay around £700m extra in tax on private pension incomes compared to a forecast of £320m.
The boost to the Treasury’s coffers could prove vital as the chancellor prepares to announce sweeping cuts to welfare benefits and Whitehall departmental spending in the budget on Wednesday.
Pension freedom rules allow people over the age of 55 to take money out of their pot without any constraint on how they spend it.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “It looks as if the chancellor could be in for a handy windfall, thanks to his pension reforms.”
Anti-poverty campaigners have warned against dipping into pension pots without taking advice on the tax implications, which can result in large bills.
McPhail said: “It also underlines the importance of maintaining a stable pension system which continues to encourage and reward responsible long-term savings habits.”
