The Labour Party has confirmed it would reinstate a lifetime allowance on pensions if it were to win the next election, reversing one of the key announcements in yesterday’s Budget.
Speaking this morning shadow chancellor Rachel Reeves described the abolition of the LTA as “the wrong priority, at the wrong time, for the wrong people”. She said it would result in a huge tax break for the top one per cent of earners, but do nothing to help ordinary savers build a decent retirement fund.
Labour says the decision to scrap the LTA which currently stands at £1.07m will mean those with more than £1.4m million pension pot will save up to £150,000 in tax on these pension. This comes at a time when the Office of Budget Responsibility shows that the real disposable income of the average UK household has fallen by £1,500 since the start of the pandemic.
Hunt is proposing the remove the tax charge for savers who exceed the LTA from April 2023, with the allowance removed completely from April 2024.
However the prospect of this being reintroduced, potentially just months later, with an election due by May 2024 has been described as ‘farcical’ by pensions experts, and raises the prospect of yet more complexity as protection measures would be needed for those who exceed this level while it was part of the permitted rules.
Some advisers says this shows how pension rules have become a political football in recent years, which makes long-term planning impossible and is denting public confidence in these savings plans.
Canada Life technical director, Andrew Tully says:“You simply can’t play political ping pong with the pensions system. People plan for the long term and that relies on confidence the goal posts won’t constantly shift. We need cross party consensus on issues like this to deliver the stability required or else we seriously risk wrecking savers retirement plans.
“There are already restrictions in the system limiting pension savings and tax breaks — just let the annual allowance do the job it’s designed to do.”
Others expressed doubts as to whether Labour would reverse this decision, pointing out it could spark a new wave of early retirement, particularly in the NHS.
The Lang Cat director of public affairs Tom McPhail says: “I think they’ll struggle with this one. The planning consequences (of re-introducing a limit) would be horrendous. In 2014 Labour initially tried to push against the pensions freedoms before they realised how popular the measures were and backed down. I think this will be the same.”
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