The Labour Party is thought to have rowed back on its intention to reinstate the pensions Lifetime Allowance, according to a strong report in the FT at the weekend.
The LTA of £1,073,100 was legally abolished in April, having been practically removed at Jeremy Hunt’s 2023 Budget, allowing pension pots to grow to any size without danger of excess tax penalties.
Labour criticised Hunt’s move in March 2023 and has suggested ever since that it was considering reintroducing an LTA in some form.
In reaction, Jason Hollands, managing director at Evelyn Partners, said: “Labour’s plans to reinstate the pensions Lifetime Allowance sprang from a somewhat knee-jerk reaction to Chancellor Jeremy Hunt’s surprise announcement that the LTA would be scrapped in his 2023 Budget. If reintroduction of an LTA is absent from the Labour manifesto on Thursday that will be welcome news, as the prospect of yet more tangled legislation to resurrect this punitive tax penalty on large pension pots and public sector pensions has caused considerable uncertainty over the last year for those deliberating whether or not to add to their savings.
“The LTA had perverse consequences for public sector professionals with generous Defined Benefit schemes, including fuelling early retirement by doctors and deterring medical consultants from taking on extra surgical work. Reintroducing it, other than at a very high level, would have jeopardised the need to clear NHS backlogs. For private sector employees with Defined Contribution pensions, the LTA both deterred people from building up their retirement provision and penalised those who made good investment choices – as investment growth could drive a pot over the LTA.
“We will have to wait a couple of days to see if there are any other pensions-related measures in Labour’s manifesto. One potential sting-in-the-tail could be a move to make DC pension assets part of a persons’ estate for inheritance tax assessment purposes. Other areas to watch for are changes to upfront income tax reliefs, the size of the annual allowance or the amount of tax-free cash that can be taken from private pensions.
“Above all the majority of savers, retirees and their advisers would welcome a period of certainty and stability when it comes to the taxation of pensions – and private pension saving in the UK would certainly benefit from that too.”
In further reaction, Tom Selby, AJ Bell director of public policy, said: “The decision to scrap the pensions lifetime allowance for good in April this year was both necessary and sensible. Labour therefore deserves credit for recognising this and dropping plans to reintroduce the limit, a move which would have risked hitting senior public servants, including doctors, with huge tax bills, added unwelcome complexity to the pensions tax system and unfairly penalised those who enjoy strong investment growth.
“Labour’s commitment to stability should give savers confidence to plan for the future. This move also supports wider efforts to boost investing, including in UK companies. Any pension tax reform taken forward by the next government should focus squarely on simplification and encouraging more people to save for the long term.”
Nick Henshaw, head of intermediary distribution at Wesleyan, said: “For good financial planning, we need clear, consistent policy that supports long-term strategies. That’s what this decision delivers, and why it is so welcome.
“It is particularly good news for experienced public sector professionals, such as medics and headteachers, who have been facing years of punitive pension tax issues because of the LTA. In our view, even proposals to re-introduce the LTA with exemptions for public sector workers would have been problematic – creating a wedge between public and private sector taxpayers and only adding to the pensions complexity that public sector workers already face.”
