Labour has set its sights on higher-rate pension tax relief, declaring that too much Government money is being spent on the pensions of higher earners.
Speaking at a fringe event at the Labour conference in Liverpool this week, Shadow pensions minister Rachel Reeves said the Government should look at redistributing some of the £20bn a year it spends on pension tax relief.
She said: “We spend £20bn a year on tax relief for pensions and two-thirds of that goes to higher-rate taxpayers. Half the population get just 10 per cent of that £20bn. So I would like the Government to look at ways to make pension tax relief more efficient, more effective and better value for the taxpayer in incentivising the people who most need to save.”
National Association of Pension Funds chief executive Joanne Segars said: “We need to remember we are talking about tax relief here. There are a large number of people who get higher-rate tax relief on their contributions but they also pay tax at a higher rate when they retire and we should not lose sight of that.”
In 2009, Labour proposed a reform of higher-rate pension tax relief which would have seen relief cut for people earning over £130,000.
The complex measures were scrapped by the coalition Government which instead implemented a £50,000 annual allowance while continuing to allow individuals to receive relief at their marginal rate. It also announced a cut to the lifetime allowance from £1.8m to £1.5m from April 2012.
Scrapping higher-rate relief was a LibDem policy before the election and was promoted by current pensions minister Steve Webb.
Hargreaves Lansdown head of pensions research Tom McPhail says: “If Labour are going to raise the issue of tax relief, it is essential they look at the broader pensions tax landscape rather than simply looking at higher-rate relief in isolation.
“Making it fairer will be harder to deliver than it is to speculate on and I am not convinced now is the right time with automatic enrolment starting next year.”
For full financial services coverage of the Labour conference, see this week’s Money Marketing.