Before the pension lifetime allowance was ditched by Chancellor Jeremy Hunt on 6 April, the maximum amount you could earn in pension savings before being taxed was £1,073,100.
Shadow chancellor Rachel Reeves previously had plans to bring the policy back, but should Labour win the general election that will no longer go ahead, the Financial Times reports
Some £800m was mooted to be raised by the cap coming back, but this has not formed any of the opposition’s spending. As a result, there will be no “black hole” in the party’s potential budget.
One reason for the change of heart has been attributed to not wanting to lose votes from wealthy savers and pensioners ahead of the election on 4 July.
Labour ‘deserves credit’ for LTA plan
Whatever the inspiration for the move, Tom Selby, AJ Bell’s director of public policy believes the party “deserves credit” for “rowing back” and abolishing its stance on the LTA cap.
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Selby said if Labour’s policy went ahead it “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”.
He added: “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.”
Cap ‘would have jeopardised need to clear NHS backlogs’
Jason Hollands, managing director at wealth management firm Evelyn Partners heaped praise on the idea and said it is welcome news that the “somewhat knee-jerk” reaction to Jeremy Hunt’s budget announcement in 2023 has been reversed.
Hollands highlighted how the lifetime allowance had a particular impact on public sector professionals who were more inclined to retire than have their “generous” benefits hit by tax.
He said: “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.”
Hollands added: “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 person’s 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.”
