The government is set to make GBP 1.2billion in tax revenue this financial year after GBP 6billion is withdrawn from pension pots.

Hymans Robertson, an independent pension's consultancy, says the GBP 6billion is significantly higher than both the GBP 320million estimated in the 2014 Budget revised GBP 415million estimate made in the autumn statement.

The company says the figures show a need for the government to offset the increase in tax receipts due to the pension freedoms, by offering tax relief on all pension savings.

Chris Noon, partner at Hymans Robertson, said: "We need a framework for pension tax relief that is sustainable and fair – and encourages pension saving."

"A flat-rate of tax relief on pension saving, perhaps at the 33 per cent level suggested by former pensions minister Steve Webb, would be a more effective redistribution of tax relief than the current policy."

In addition to the GBP6billion, Noon says the government also wants to reduce the cost of pension tax relief.

He said: "It has already announced another cut to the lifetime allowance, raising GBP 0.6billion by reducing the limit to GBP 1million from April 2016, and looking to raise a further GBP 1.4billion by reducing the maximum tax relief for individuals earning above GBP 150,000."

He believes that the changes amount to more than GBP 3billion in additional revenue, which, he says, is too much to remove from pension saving.

Hymans Robertson's research found two thirds of private sector employees aren't saving enough for an adequate level of retirement income.

"It's clear that the government sees pensions, and particularly the GBP 34 billion spent on tax relief, as a soft target for increasing short-term tax revenues without a care for the long-term implications for retirement incomes," said Noon.

"The stark reality is most people do not save enough and won't have an adequate income in retirement."

First published 02.07.2015

Lindsay.sharman@wilmingtonplc.com