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Labour seeking to cap pensions tax for top earners

04 January 2013

The Labour Party has announced it will be campaigning to cap pensions tax relief at 20 per cent among UK employees who earn more than £150,000 a year.

According to shadow chancellor Ed Balls, this is part of a plan to find work for every British adult above the age of 25 who has been jobless for two years or more and would come into effect if the party is successful in the 2015 election.

He stated the move would generate up to £1 billion every 12 months, which would be used to fund the party's project.

If these changes are rolled out, some of the nation's highest earners could see a hefty cut to their retirement finances - they would only receive basic rate tax relief on savings, whereas they currently experience rates of 50 per cent.

Mr Balls explained that in such a tough economic climate, it is not right to subsidise pension contributions of the UK's top two per cent of earners at more than double the rate of average incomes.

"Government has a responsibility to help people into work and support those who cannot, but those who can work must be required to take up jobs or lose benefits as a result - no ifs or buts," he added.

The chancellor's proposal is similar to one that was made by Gordon Brown and Alistair Darling in 2009 and later abandoned by the coalition government, which instead opted to introduce an annual limit on the amount workers can put towards their retirement plan.

Speaking to Employeebenefits.com, Tom McPhail, head of pensions research at financial services firm Hargreaves Lansdown, said one of the main problems with pensions planning is the lack of engagement witnessed across the UK population.

He concluded: "Many people don't trust pensions because they are subject to persistent political interference. Only a third of private sector employees are currently participating in a workplace pension."