The government has been accused of hiding figures in the small print after they received £4.4 billion more in income tax from pensions than they anticipated.

The figures are from the financial year 2016-17, published by HM Revenue & Customs (HMRC). They show in a footnote that the calculation of tax paid by pensioners has changed.

That’s because instead of using sample surveys, the figured are based on real-time information that is provided by pension schemes.

That has resulted in figures on pensioner’s income tax being revised from the estimate of £13.5 billion to £17.9 billion, an increase of more than £4 billion. The figures affect the government’s estimates of tax relief given out.

Pensions Tax relief calculates the net cost of tax relief on pension contributions, coupled with investment growth in pensions while taking away the tax paid on payments from pensions schemes to those that have accessed them in that year.

As a result, it is believed that the overall cost of pension tax relief could be £5 billion lower than previously thought. Chancellor of the Exchequer Philip Hammond said last week that the current pension tax reliefs are “extraordinarily generous”, adding that they were one of the most expensive tax reliefs in the system.

Sir Steve Webb, director of policy at Royal London, said: “It turns out that pensioners are paying more than £4bn 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.”


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