Workers who earn over £50,270 face £80,000 hit under rule change from October

Workers who earn over £50,270 face £80,000 hit under rule change from October
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Wealthy workers face £80,000 hit to a pension pot nest egg. People who are wealthier could face a raid from the new Labour Party government and Chancellor Rachel Reeves in the Autumn Budget and Statement on October 30.

Ms Reeves is rumoured to be looking at scaling back rates of tax relief available on pension contributions made by people paid over £50,270. Ms Reeves is understood to be reviewing plans to introduce a flat 30 per cent rate of pension tax relief in her first Budget next month.

The move would be a boost to basic-rate taxpayers who currently receive tax relief on pension contributions at their marginal income tax rate of 20 per cent. However, higher- and additional-rate taxpayers who get 40 per cent and 45 per cent relief would lose out.

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The retirement pot of a worker who remains in the higher-rate tax bracket over a 40-year career would be £83,506 smaller if the 30 per cent flat rate were introduced, according to analysis by wealth manager Quilter. A basic-rate taxpayer, by comparison, would end up with a nest egg worth £27,807 more than if pension relief stays the same.

Quilter’s calculations show that the pension pot of a higher-rate taxpayer would shrink by over 10 per cent, from £794,984 to £711,477 under a 30 per cent flat rate. A basic-rate taxpayer’s pot would grow by 10 per cent, from £288,090 to £315,897.

Ian Cook, of Quilter Cheviot, said that transitioning to a flat rate system would be a “complex undertaking” that would “fundamentally alter” how tax relief is applied. He added: “To make flat rate relief work, all pension contributions, including employer ones, would need to be standardised. This could require substantial changes to the current system where contributions are deducted pre-tax.

“Given the complexity of such changes, a considerable period of consultation and phased implementation would be likely, possibly over years rather than weeks or months.” A Treasury spokesman said: “We do not comment on speculation around tax changes outside of fiscal events.”