Workers who earn below £50,000 handed £27,807 each under pension rule change

Workers could be £80k worse off in their pension pots under a Labour Part rule change from October. Proposed changes by Labour on pension tax relief would mean higher earners could face a eye-watering £80,000 reduction over their working life.

As part of her bid to plug a £22 billion black hole left by the Conservative Party government, new Labour Party Chancellor Rachel Reeevs, who took over from the Tories and Jeremy Hunt, could bring in a potential flat rate of 30 per cent of pension tax relief.

According to an analysis by wealth manager Quilter Wealth, a worker who remains in the higher-rate tax bracket would receive £83,506 less over a 40-year career if this new 30 per cent rate is introduced. Whereas a basic-rate taxpayer would receive £27,807 more in their nest eggs.

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This would mean a higher-rate taxpayer’s pension pot would be lowered by more than 10 per cent from £794,984 to £711,477. A basic-rate taxpayer’s pot, however, would be 10 per cent higher from £288,090 to £315,897.

Shaun Moore, tax and financial planning expert at Quilter said: “During Labour’s election campaign the party was tight lipped on its plans surrounding CGT. While senior Labour figures were forthright in their conviction that the party would not raise national insurance or income tax, no one was willing to get drawn on what it might do to other taxes such as CGT.

"If plans such as aligning CGT with income tax rates do become a reality, then we could see some significant repercussions in the short and long term. Unless anti-forestalling measures are announced with any plans then we could see a surge in property sales as homeowners rush to sell their second properties before new legislation comes into place.

"This could temporarily boost housing market activity, and many people will reconsider their property portfolios, potentially shifting their investments to other assets with more favourable tax treatments. The truth of the matter is though; at this point nothing has been announced and unless selling a second home or a buy to let is already part of your plan then making decisions based on what might happen is not sensible.

"However, these figures do serve to illustrate how much more tax might have to be paid in the future should this policy proceed.”