Labour's proposal to raise income tax for higher earners could result in industry "horror" with the annual allowance taper being slashed by £70,000, Hargreaves Lansdown has warned.
The taper currently means those who earn over £150,000 have their annual allowance for pension contributions reduced by £1 for every £2 earned, up to a maximum of £30,000. With the annual allowance currently set at £40,000, this means someone earning £210,000 is currently restricted to £10,000 of annual contributions.
Shadow chancellor John McDonnell announced at the weekend that the party would increase income tax on earnings over £80,000. However, because pension tax relief is based on income tax rates, the proposal would see more earners receiving higher tax relief on pension contributions.
Hargreaves Lansdown has predicted that this could then see a Labour government reducing the annual allowance taper threshold from the current £150,000 to £80,000.
If Labour did decide to reduce the allowance to £80,000, in order to reduce the amount of tax relief the government doles out, it would mean anyone earning over £140,000 would have annual contributions capped at £10,000.
Hargreaves Lansdown head of policy Tom McPhail said the party needed to think its policy through more.
"Given the ideological leanings of the Labour party, it is hard to see them being relaxed about actually increasing pension tax relief for higher earners," he said. "This means we'd be likely to see the annual allowance taper threshold brought down to £80,000, a move which would be met with horror by employers and the pensions industry alike.
"It isn't clear at the moment whether Labour have thought this aspect through or what they plan to do about it but we should expect a further announcement on this from them."
The consultancy warned that, based on HM Revenue and Customs data, such a move could hit 1.2 million people, and "would make life more difficult for millions more".
The Labour Party has given no indication as to whether this would form part of its policy. It is expected to release its full manifesto next week.
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