More middle-class earners will be forced to transfer their pension outside of Britain if the higher-rate of tax relief is scrapped, it has been claimed.
The tax benefit, which currently allows relief on pension contributions to increase the fund, has come under increasing speculation that it will be cut after the 2015 General Election.
All three main parties have hinted there would be significant changes, or the complete abandonment of, the higher-rate tax-relief.
But, Nigel Green, the boss of one of the world’s largest independent financial advisory organisations, dubbed the move a “punishment” and said it would leave many dependent on the state.
The founder and chief executive of deVere Group said: “The removal of the higher-rate tax relief would be a punishment for those who have the ‘audacity’ to have aspired, worked-hard and been successful.”
He added: “Whatever way you look at it, this policy would be a tax raid on middle-class earners.
“No doubt, it would be ‘spun’ as primarily affecting society’s super-rich, but this is simply not the case.”
He said the step would act as a disincentive to save when there was a “critical need to reignite Britain’s appetite for saving”.
“It is universally recognised that we must become more financially self-reliant, because in the future the government is unlikely to be in a position to support older people as it has done for previous generations, due to growing deficits in company pension schemes, and because of increasing life expectancy, amongst other factors,” he said.
“Yet despite this, it is likely that politicians will, after the election, scrap higher-rate tax relief – a key advantage to putting money aside for retirement – to bolster tax revenues.
“This is short-sighted as those without their own provision will typically end up dependent on the State.”
It is thought the scrapping of the relief will encourage more to move their pension pots outside of the UK in order to receive the similar benefits.
The CEO warned that government was in danger of seeing pensions as “easy targets” to “bolster its coffers”.
“As such, should the higher-rate tax relief be cut, I suspect it will be the ‘straw that broke the camel’s back’ for many individuals with British pensions,” he said.
“They will then look to transfer their pensions out of the UK and into an HMRC-recognised QROPS [Qualifying Recognised Overseas Pension Scheme] in a secure, tax efficient jurisdiction – and out of reach of the British taxman.”
By Laura Heads