Final salary pensions raid will lead to rise in pension transfers out of Britain
Should the government go ahead with a major raid on final salary pensions, it will almost certainly trigger a significant increase of pension transfers out of Britain.
Government ministers have reportedly held recent secret meetings with the pension industry, where plans were suggested to cut the limit on final salary (defined benefit) schemes by as much as 25 per cent.
It would appear that history is repeating itself as the government is again looking at pensions as easy targets to boost revenue. This latest raid would reduce the pensions limit on defined benefit schemes by a quarter, subsequently forcing an increasing number of people above the allowance threshold, making them liable for the penal tax rate on the excess amount, which is up to 55 per cent.
Looking at the current figures, a pre-tax pension income of £50,000 per annum would sidestep additional tax, however should the changes take place, those with a pre-tax income from a final salary of £35,000 would have to pay the added tax charges of up to 55 per cent.
This raid, which could cut pension pots by over 25 per cent would therefore, in my view, see more and more pensions being transferred out of the UK. It is, in effect, a covert attack to haul individuals with some of the country’s most generous ‘gold-plated’ schemes into the aforementioned 55 per cent tax net.
This could be the breaking point for many middle class savers. An increasing number of people are aware that the government views pensions pots as a treasure trove they can dip into whenever the need arises. They are also mindful of the UK’s escalating pensions crisis, leaving fewer incentives than ever before to keep retirement funds in the country.
Naturally then, numerous individuals who are looking into retiring overseas, or those who already do, will logically be considering moving their pension pots out of Britain.
Should they move to a jurisdiction such as Malta or Gibraltar – both safe, secure and tax-efficient areas – their retirement incomes will be shielded from these and other such changes that may be introduced by the government.