Why Labour’s plans are good for the wealthy

Labour’s planned overhaul of income tax rates will dramatically boost pension tax incentives for higher earners, according to AJ Bell.

For someone earning £100,000, a £5,000 pension contribution would cost just £2,750 under Labour, compared to £3,000 currently.

The very highest earners could pay £5,000 into a pension at a net cost of just £2,500 if tax relief remains unchanged.

It seems almost certain Labour would aim to avoid this via major reform of pension tax relief.

Tom Selby, senior analyst at AJ Bell, comments: “One of the consequences of Jeremy Corbyn’s general election income tax grab would be a significant boost to retirement savings incentives for higher earners.

“Assuming the pension tax relief system remains unchanged, someone earning £100,000 would be able to save £5,000 in a pension at a net cost of £2,750 under a Labour Government – almost 10% less than the £3,000 it would cost to save the same amount under the Tories.

“Similarly, someone earning £160,000 could save £5,000 in a pension at a net cost of £2,500 under Labour, versus £2,750 under the current system.

“However, savers should hang fire before popping the champagne corks in celebration at the Labour Party’s apparent generosity to pension savers.

“The party’s manifesto makes little mention of pension tax relief and as things stand we have no idea whether it intends to continue with the existing system. Given Labour’s focus has been on taxing the wealthiest to help fund its spending plans, it seems likely boosting pension tax relief for high earners is an unintended consequence of its policy and they would almost certainly look to avoid this via major reform of pension tax relief.

“In the short-term one would assume a Labour Government, if elected, would pursue income tax reform before addressing pension tax relief. This would risk creating a ‘buy now while stocks last’ rush to pile money into retirement pots before the tax relief drawbridge is pulled up.

“With retirement policy is arguably taking a bigger role than ever before in this election, savers deserve to know the major parties’ intentions when it comes to pension tax relief ahead of polling day on 12^th December.”