"The earliest cohorts have continued to withdraw funds at a consistent rate, whereas we had previously expected their withdrawals to have diminished by this stage."
The rate at which individuals are using pension freedoms to access their pension funds continues to surprise official forecasters, according to papers published alongside the Budget.
The Office for Budget Responsibility’s Economic and Fiscal Outlook presents the latest forecasts for income tax revenue and says that tax revenues from "pension flexibility withdrawals... continue to surprise on the upside".
It had been thought that those who were first able to take advantage of pension freedoms in 2015 would now have slowed down their rate of withdrawal.
But instead, the OBR says: "The earliest cohorts have continued to withdraw funds at a consistent rate, whereas we had previously expected their withdrawals to have diminished by this stage."
The policy has already generated far more tax revenue than was first expected. The OBR says that between 2015/16 and 2018/19, the policy raised £2 billion in tax, two thirds more than was originally forecast. Now that the policy continues to be a boost to Treasury coffers, the OBR has added an extra £400m per year to its estimate of additional tax revenues from the policy.
Steve Webb, partner at pensions consultants LCP, commented: "These figures show very clearly the continuing popularity of pension freedoms. Some of the tax boost will have come from people transferring out of their Defined Benefit pensions, and this trend is clearly slowing. But forecasters clearly still expect a steady stream of additional tax on flexible pension withdrawals.
"Although much is said about people spending down their pension pots too quickly, a major concern of regulators remains that people are taking money out of their pensions and then putting it into very low-interest cash accounts. The Government needs to do much more to understand how pension freedoms are being used to make sure that the regulatory regime remains appropriate."