Contributions to pensions currently attract tax-relief. Basic rate tax-payers receive 20% relief, effectively turning an £80 contribution to £100; higher rate tax-payers can claim back additional amounts subject to an overall cap in contributions.
Higher rate tax-relief to be abolished?
However, the merits of higher rate tax-relief has been continually debated and it now seems Labour are set to cut the amount available should they form the next Government.
Speaking at the Labour party conference yesterday, Mr Balls said he would restrict “pension tax-relief for the very highest earners to the same rate as the average taxpayer”; the revenue raised would be used to help pay for Labour’s planned Compulsory Jobs Guarantee scheme, designed to help young people and the long term unemployed find work.
Tax-relief has become something of an easy target over recent years, with the amount of pension tax-relief being slowly been eroded by the current Government. The maximum pension contribution allowable, which would also qualify for tax-relief has been reduced twice, firstly to £50,000 for the current tax year and then to £40,000 from 2014/15.
The Treasury and the Association of British Insurers (ABI) have both called for a debate on tax-relief to look into whether reform is necessary and Labour has already said it would restrict the top rate of tax-relief from 45% to 20%.
However, amid speculation the changes could go further, Greg McClymont, Shadow Pensions Minister, said people should “watch this space” for Labour’s proposals.