The Labour Party is understood to have ditched plans to reintroduce the lifetime allowance (LTA) on pensions.
This earlier pledge will not appear in the party’s election manifesto, according to report in the Financial Times. The manifesto is due to published this Thursday. This u-turn will cost an estimated £800m but is likely to be welcomed by many savers, particularly higher earners with generous DB schemes.
In last year’s Budget Jeremy Hunt abolished the LTA, set at £1.07m. However the legislation to introduce this has been complex — with a new limit introduced to restrict that amount savers can take as tax-free cash. Previously this had been 25 per cent of the LTA. Although people can now save more into their pensions without incurring tax changes, that maximum tax free cash sum remains at 25 per cent of the old LTA.
When the Conservatives announced the abolition of the LTA the shadow chancellor Rachel Reeves described the move as “the wrong priority, at the wrong time, for the wrong people”.
However a Labour source indicated that reversing this would not be a priority, telling the FT: “The Conservatives have botched their policy of abolishing the lifetime allowance, with thousands of people approaching retirement being left in limbo because of errors in legislation.”
“Labour’s priority is to bring stability and certainty back to the economy,” they added.
The news has been broadly welcomed by the pensions industry. Standard LIfe’s retirement savings director Mike Ambery says: “The prospect of the LTA being reintroduced will have loomed large in the minds of those savers with bigger pensions approaching retirement.
“Many of these individuals will have been weighing up whether to continue paying in above the old limit or not while uncertainty remained.
“Prior to its abolition the LTA had become increasingly problematic as some savers felt punished for doing the right thing and saving regularly and investing well. The annual allowance already places an effective cap on the amount people can pay into a pension so many felt the LTA was unnecessary.”
Hargreaves Lansdown head of retirement analysis Helen Morrissey adds: “First it was in, then it was out, then it was back in again – sort of. The game of Lifetime Allowance hokey cokey looks to have finally drawn to a close, with briefing that Labour will drop plans to reintroduce the controversial tax.
“The news will be greeted with a sigh of relief by people who can now plan ahead for their futures with more certainty. There were still tweaks to the rules in legislation needed to finalise the removal of the LTA when the election was called. It will be a relief to those planning their retirement that Labour have committed to finish the job.”
She adds: “For more than a year, Labour has been steadfast in its decision to reintroduce the tax, but details on how it planned to do so were thin on the ground. Rumours swirled that there could be a special carve out for NHS doctors or that the allowance would be introduced at a higher level. This left people in limbo as to their retirement planning.
“Now with a cross-party consensus [on the LTA] people can move forward with their planning. The Lifetime Allowance affects more than just ultra-high net worth people. It could be an issue for many who have saved diligently for their future. Any reform of the pension tax system should be done with the aim that people are properly incentivised to save for their futures without having to worry about being tripped up by complex rules. Pensions planning is a long-term business, creating consensus around the rules is essential.
