Pension pots could be hit with higher tax as the government seeks to plug the gap in the UK labour market, deVere Group investment director James Green has warned.
Green said “major and previously unforeseen” changes in the UK labour market since the pandemic, notably the considerable rise in people retiring early, could prompt the government to take action to compensate for the drop in productivity.
According to data from the Office for National Statistics, around 575,00 people have left work since the start of the pandemic, the equivalent to almost 2% of the UK’s workforce.
Green said: “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 taxation on pension pots.
“In most major economies, there are more people in work today than pre-pandemic. In Britain, it’s the other way around. A shrinking workforce means that action will need to be taken.”
Green said that pensions have often been seen as an “easy target” by successive governments and this is unlikely to change going forward.
Green continued: “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.”
But Green says that rather than raid pension pots, the government should work on incentives instead, including the overhauling of the lifetime allowance to encourage more over-50s back into work.
