What are the government’s plans for your pension?

Unlike the Conservatives, Labour made no pledges in the run-up to the election that pension tax relief would remain untouched.

Rachel Reeves has previously said she would support the introduction of a flat rate of pension tax relief, whilst benefiting basic rate taxpayers, would leave higher and additional rate taxpayers worse off.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The current pension tax relief system provides a great incentive to save into a pension, with contributions attracting relief at your marginal rate. This means someone paying a higher rate tax gets up to 40% relief on their contributions and an additional rate taxpayer gets up to 45%.

“However, if the government opts for a flat rate of pension tax relief – say of 30% – then these groups would be badly hit. It means a pension contribution of £1,000 would cost £700 rather than £600 or £550 as it currently does. However, it would be better news for those who pay basic rate tax as the same contribution would currently cost them £800.”

It’s very unlikely that any changes to pension tax relief, if introduced, would be retrospective, so tax relief you’ve benefited from in the past should be safe. However, if you’re worried that tax relief could be restricted in future, you may want to consider making the most of current rules now.

At the moment, you can earn tax relief on pension contributions of up to 100% of your earnings, or £60,000 a year, whichever is lower. If you’re earning £70,000 a year, for example, that means you’d be able to pay up to £60,000 of this into your pension.

Any pension payments you make over the current £60,000 threshold are subject to the usual income tax rates. You can also carry forward any unused Annual Allowances from the previous three years, provided you belonged to a pension scheme during those years. You can learn more about carry forward in our guide Pension carry forward explained.