Further pension raids proposed
There’s a little over a year to go until the UK general election and all the political parties are beginning to articulate their pensions policy.
And with the over 65s the fastest growing sector of the population, it is perhaps hardly surprising that pensions – along with several other issues such as the economy and immigration – are receiving considerable amounts of ‘air time’ in the Westminster corridors of power, are generating so many headlines, and are set to partly dominate the political landscape until the country goes to the ballot.
This week, perhaps not so coincidentally scheduled just a week ahead of the coalition’s 2014 budget, it was Labour’s time to set out their pensions stall.
Unveiling the party’s manifesto on this issue, Shadow Chancellor Ed Balls revealed that his party plans to slash pension tax relief to 20p in the pound for those earning more than £150,000. Currently, it stands at 45p in the pound for top earners.
Labour claims this is to fund schemes that will “guarantee jobs” for young people who have been unemployed for over a year.
Previously Mr Balls hinted that this “initiative” would only be funded for the first 12 months of a new Labour government. However, this week he stated that the pledge would last until at least 2020.
Clearly this cutting of the tax relief policy boils down to another ‘soak the rich’ raid on pensions and harks back to the politics of envy of old.
With depressing predictability, along with the unveiling of this mad manifesto came the cries of “those with the broadest shoulders should bear the greatest burden” as an attempt to justify it.
Indeed, we have heard that mantra so much since the start of the austerity cuts that many might wonder if the wealthier in our society are taxed at all.
The reality of the situation, however, points the other way. The top 1 per cent of earners contribute almost 30 per cent of all income tax in the UK. Or as the Institute of Directors recently revealed, the top 1 per cent pay more than double that of the bottom half of all earners in Britain.
With this in mind, you would think that politicians would highly value the top earners’ contributions that significantly bolster the country’s coffers and move to provide incentives – such as pension tax reliefs, Mr Balls – for them to remain in the UK to keep paying their taxes to The Exchequer.
As no-one likes paying more tax than they have to, I forecast that should Labour win the next general election and slash this tax relief to 20p, there will be a flight of top-earners and high achievers from Britain.
We only have to look across the Channel to see evidence of this scenario, as it is what happened when France’s President Hollande introduced his recent wealth tax. It proves that if the rich are taxed too much, or ‘soaked’, they will simply move elsewhere to a lower tax jurisdiction because they typically have the resources to do so. The result for the higher tax country? The taxman takes more per person, but from a much smaller base, leaving the country significantly poorer over time.
Another major issue from Mr Balls’ “initiative” is that it discourages people from saving for their retirement. One of the main motivations for people saving into a pension is the tax relief – therefore cutting it serves as disincentive. And clearly, if the majority of the population is financially independent in older age this means not only will the individual and their families be able to enjoy the retirement they desire with a higher disposable income, it will also boost the economy and help ensure its long-term, sustainable growth as the aging population will be less dependent on the State.
In my view, MPs of all political colours nowadays perceive pensions as ‘fair game’ for plundering. They can, as we have seen over the last few years, easily and readily justify the raids on retirement funds that decent, hard-working people have prudently put aside.
Therefore, it comes as little surprise to me that a growing number of Britons –a 15 per cent increase, as The Telegraph recently reported – are considering moving their pensions out of the UK and into HMRC-recognised Qualifying Recognised Overseas Pension Schemes (QROPS).
Nigel Green deVere Group
Written 13th March