With only a year left until the UK general election, the county’s major political parties are starting to articulate their policies on pensions.
The latest disclosure has come from Labour, which has announced a cut to the tax relief on the pension plans of the UK’s high earners, in order to pay for the party’s pledge to find jobs for 18 to 24-year-olds who have not been employed for 12 months.
The jobs guarentee will also be funded via increased tax on bankers’ bonuses.
Coming just ahead of the coalition’s 2014 budget, Shadow Chancellor Ed Balls announced that the party’s measures include the slashing of pension tax relief from GBP 00.45 to GBP 00.20 for every pound saved by those earning over GBP 150,000.
In what critics are claiming is the latest attempt to tax the rich – or what is termed “soaking” – the pledge will seize up to GBP 1.3 billion each year for the duration of the next Parliament.
The trend, and its effects
The UK’s top 1% of earners pay nearly 30% of all income tax, yet many express dismay at the “plundering” of their pensions by the Government.
Should Labour come into power and indeed slash the pension tax relief, they may provide the impetus for more high earners to flee the country, as seen in France after the implementation of the 2012 Wealth Tax.
The move of wealthy French (many of whom ironically moved to London when the tax was introduced) proves that when individuals feel they are taxed too much, they have the inclination and the means to move to a lower tax jurisdiction.
Supporting this notion that the wealthy are willing and able to up sticks and leave England is the 15% increase in UK pension holders who want to transfer their pension into Qualifying Recognised Overseas Pension Schemes (QROPS).
Recognised by HM Revenue and Customs (HMRC), they allow individuals living outside of the UK to move their UK pension abroad – often to a low tax jurisdiction such as the Isle of Man.
As well as offering greatly reduced tax on pension income, QROPS allow pension holders to receive that income in the currency of their choice. The schemes also protect pensions from UK inheritance tax (IHT), and, depending on which jurisdiction the fund is moved to, allow 100% of a person’s pension to be given to loved ones upon death.
In addition QROPS allow a 30% tax-free lump sum once a person starts their retirement, highly preferable when compared to the UK’s 25% limit. A regulated independent financial advisor would be able to help any individuals wanting to learn more about the QROPS legislation.
Should Labour’s proposed tax relief cut come into effect, of if another policy was engineered which damages pensions, it is expected that many high earners will relocate outside of the UK.
After that, it is only through research and consultation with a professional that the right pension option can be chosen to ensure a comfortable, and profitable, retirement.