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Will UK Budget spark pension exodus?

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UK pensioners will increasingly be seeking to move retirement funds overseas as fears grow about the Budget in March and government plans to trap into retirement savings, warned an investment adviser at a leading financial advisory and fintech.

“The UK is facing at least a decade of lost economic growth amid the readjustment to a post-Brexit era; a weak post-pandemic recovery; a shrinking, ageing and ailing population; a continuing cost of living crisis; and falling productivity and private sector investment,” said James Green, Investment Director at deVere Group.

“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,” Green added, as Chancellor Jeremy Hunt prepares to delivering the first formal UK Budget since 2021 on March 15.

The last official Budget was presented in October 2021 by Prime Minister Rishi Sunak, when he was Chancellor. Since then, a “series of panicked fiscal statements” have been issued by the Treasury.

Easy target

“Successive governments (in Britain) have shown that they see pensions as easy ‘low-hanging fruit’ 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,” Green said.

“Using the inflation line, we expect that the government will over time and starting in the Budget, begin to roll out freezes of allowances, benefits and thresholds, and potentially taxes on pension payouts.”

To mitigate the hit to retirement funds that could be announced in March by the Chancellor, deVere’s Green believes that UK pension holders will increasingly be seeking to move their retirement funds overseas “to protect their nest eggs.”

When retirement funds are transferred overseas into a pension scheme based outside the UK, but that still meets HM Revenue & Customs (HMRC) rules, they are not typically subject to inheritance or income tax in the UK.

In addition, after paying initial tax on the transfer, pension holders can often benefit from a much lower tax rate, amongst other benefits.

The deVere director concluded that, “It’s a difficult move politically to go after pensions as the Conservatives typically do well from older voters, but the Treasury needs to bolster the coffers.”