The Labour Party has scrapped plans to reintroduce the lifetime allowance (LTA) for pensions.
According to the Financial Times, shadow chancellor Rachel Reeves is set to drop the proposal from Labour’s manifesto, set to be published on Thursday.
The LTA is the total amount that can be accumulated in a UK-registered pension scheme without incurring certain tax charges.
The current government scrapped the LTA as part of the 2023 Spring Budget, while Labour had previously pledged to reverse the decision.
“The decision to scrap the pensions lifetime allowance for good in April this year was both necessary and sensible,” said Tom Selby, AJ Bell director of public policy.
“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.”
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Graham Crossley, NHS pensions expert at Quilter, added that the supposed U-turn shows that it has “listened to the serious concerns being raised” by its plans and the lack of clarity about how a reintroduction would work.
“Following weeks of rumours including that there would be a carve out for the NHS, followed by the prospect of much higher upper threshold, Labour has clearly realised that each option would have sparked controversy,” he said.
“Similarly, how Labour would address the monetary cap on tax free cash could also open a can of worms. All these questions could end up being a distraction that poses a risk to Labour’s campaign. According to the IFS, reintroducing the charge at its previous level might raise almost £800m a year, but the damage to the NHS could far outweigh this increase in tax revenue.
“If Labour did push on with its plan it risked causing an exodus of senior public sector workers to avoid suffering punitive tax charges. The lack of clarity is having an impact on retirement plans right now. Senior hospital doctors, GPs and senior managers are worried that a reintroduction might have been more punitive than the current tax regime.
“This uncertainty risks people making knee jerk decisions to retire now under the current set of rules. However, Labour will need to be careful to not compound these problems and ensure its manifesto says that they’re not going to reintroduce the LTA, rather than simply leaving the reintroduction of LTA out of the manifesto.”
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