Higher tax on pension pots to make up for UK workforce issues?
Pension pots could be hit with higher tax as the government tries to plug a growing gap in the UK’s labour market, warns the investment director of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The warning from James Green of deVere Group follows major shifts in Britain’s workforce following the pandemic.
He says: “There have been major and previously unforeseen – and therefore unplanned for – changes in the UK’s labour market since the pandemic.
“It’s of significant concern for the government that there’s been a considerable rise in people retiring early, often in their 50s, since the events of 2020. Many people simply haven’t gone back to work post-pandemic.
“We expect that due to the relatively high levels of wealth of this cohort, and in order to compensate for the drop in productivity, there could be further levels of taxations on pension pots.”
According to data from the Office for National Statistics, approximately 575,000 people have left work since the start of the pandemic, which is equivalent to almost 2% of the UK’s workforce.
“In most major economies, there are more people in work today than pre-pandemic. In Britain, it’s the other way around,” notes James Green.
“A shrinking workforce means that action will need to be taken.
“As we have seen time and again, successive UK governments have shown that they see pensions as an easy target they can raid or tweak whenever they deem it appropriate. This is unlikely to have changed, especially in light of the scale of the issue.”
The UK Budget is now exactly a month away.
In January, the deVere Group investment director suggested that chancellor Jeremy Hunt’s 2023 Budget on 15 March could see UK pensioners increasingly seeking to “move retirement funds overseas” as fears grow about government plans to tap into retirement savings.
He said: “As the UK falls to the bottom of the G7 nations in terms of quarterly economic growth, the country’s tax take inevitably falls too – and this is of serious concern for UK pension holders.
“With the UK economic crisis escalating and an urgent need to plug the financial hole, it can be reasonably assumed that the government will consider tapping into the billions held in retirement savings.”
The impact of Brexit has also played a role in why the shrinkage is occurring in Britain, say leading thinktanks, who conclude there has been a shortfall of several hundred thousand people in the UK labour force.
“Rather than raiding pension pots with higher taxation, the government needs to work on incentives, including the overhauling of the lifetime allowance, to encourage the over 50s back into work,” concludes James Green.
