IFS slam Labour and Tory plans targetting pension tax relief as "damaging and counterproductive"

Guy Bentley
Follow Guy
Targetting pensions tax relief could be counterproductive (Source: Getty)

Tory and Labour plans to cut pension relief for top earners have come under fire from the independent Institute for Fiscal Studies (IFS).

Director of the IFS, Paul Johnson warned that even though both sets of policies apply to a relatively small number of people they nevertheless could prove to be "complex, damaging and counter-productive". He added that Britain "risks rushing towards something like chaos in the taxation of pensions for those on high incomes."

The Tories want to cut the annual allowance that higher earners can contribute to their pension pot while still attracting income tax relief from £40,000 to £10,000 once income reaches £210,000.

The Conservative policy would, in the words of the IFS "have the curious effect of allowing those with an income of up to £150,000 to save £40,000 a year in a pension but restrict that to £10,000 a year for those with an income of more than £210,000."

Labour plans to cut the rate of pension tax relief for those earning more than £150,000 and according to the IFS are "at least as complex" as the Conservative proposals. One of the main dangers of the Labour plan would be the introduction of a "cliff edge" where some workers who increased their increasing would actually become worse off.

The Tories and Labour appear to be in an arms race to take more money from high earners and could risk killing the Goose that lays the golden egg. According to the IFS, these pension changes could have bigger "incentive and behavioural" effects on the highest earners than the 45 or 50 per cent income tax.

The IFS add that the constant targetting of the rich as cash cow for the Treasury risks having "a long term malign influence on our tax system and economic welfare."

Related articles