Despite Britain heading for serious demographic difficulties, Chancellor Rachel Reeves has now decided to include unused pension funds in the ambit of inheritance tax. This is a short-sighted measure of the highest order and will only diminish the prosperity of the nation as pensioners switch from capital retention to increased consumption, and reduced initial savings.<\/p>\n
Not only that, though, the measure represents yet another thieving operation from savers who have done the right thing to finance a bloated welfare state for those who haven\u2019t. Prudence is being punished once again.<\/p>\n
From the 6th of April 2027, unused pension funds will be included in the ambit of inheritance tax. The Treasury forecasts this to raise about \u00a31.46 billion<\/a> annually by 2030. The average bill for inheritance tax with pension assets is expected to go up by \u00a334,000<\/a> as a result.<\/p>\n According to the Treasury, the measure is designed to stop pension schemes from being used as tax planning tools instead of as for retirement proper \u2013 and they claim that it is \u2018not expected to have any major macroeconomic impacts\u2019. With a budget deficit of \u00a3137 billion<\/a> and national debt at \u00a32.8 trillion<\/a>, or, \u00a398,000<\/a> for every household in the UK, it is no surprise the state is in full-on grasping mode.<\/p>\n As with all taxation, this will damage our prosperity. What is especially bad about ending this tax relief, however, is it will seriously diminish investment in the economy because pensioners \u2013 instead of living modestly and keeping their capital in business \u2013 will spend so the taxman doesn\u2019t get his hands on it. Currently the tax rate on spending from an inherited pension pot for a higher rate taxpayer is 40 per cent<\/a>, after this measure it will rise to 64 per cent<\/a>. Aware of this, pensioners at the margin will spend their pension as opposed to bequeathing it. This reduction in investment relative to the counterfactual will diminish wages and crucially it will also reduce the incentive to pay into a pension in the first place.<\/p>\n Even if the measure only reduced savings by \u00a35 a month, not unlikely, over a 46 year period of 4 per cent interest rates, the economy would be worse off to the tune of \u00a37,547<\/a> per saver. Although it might seem a minor change now, due to the miracle of compound interest \u2013 or, rather, the disaster of not embracing it \u2013 the effect could be huge. A back of the envelope calculation of the \u00a37,547 loss over a conservative twenty per cent<\/a> of the working population gives a staggering loss of \u00a351bn by 2071. In the long term it is an iron law of social reality \u2013 a constant cause and effect relation \u2013 that taxation diminishes prosperity.<\/p>\n Huge reductions to savings are especially problematic going into the future because the old-age dependency ratio is only getting worse. According to Paul Morland\u2019s excellent new book, No One Left, the percentage of old people to working age people is set to go from 30 per cent today to 60 per cent by 2100.\u00a0 With this pension tax change, the effect of the increase will be much worse because at any one time more people will be buying consumption goods, which means high inflation is the likely result making everyone worse off too.<\/p>\n Perhaps worst of all though is the blatant expropriation of wealth that will occur under this measure. Theft is taking a person\u2019s property without their consent; inheritance tax takes a person\u2019s property without their consent \u2013 therefore, inheritance taxation is theft.<\/p>\n