The Labour party’s call for the Chancellor to consider an alternative approach to the abolition of the Lifetime Allowance is creating uncertainty for advisers and their clients, says AJ Bell.
The Finance Bill 2023 is currently passing through Parliament and is expected to receive Royal Assent by next month. It includes changes to stop LTA charges from ever arising, as well as increasing the annual allowance. The Government plans to abolish the LTA completely in a future Finance Bill.
However, the Labour party has proposed amendments reflecting its stance on the LTA, stating that the policy could be replaced with an approach that only provides changes for NHS doctors.
Labour has previously indicated that it would look to reinstate the LTA if they were to win the next election.
Rachel Vahey, AJ Bell head of policy, called the move “political posturing.”
Vahey said: “It’s highly unlikely the proposed amendment will be accepted. But it does strongly signal that Labour objects to the changes, and instead it is putting down a marker in the sand that it believes the pension pain should only be eased for NHS doctors.
“The Finance Bill is progressing through Parliament. The changes massively simplify the pensions tax rules. Advisers and their clients can now consider how the change to stop lifetime allowance charges from arising impacts retirement strategies, and what choices and opportunities the new tax rules offer.
“Of course, this is only half the legislative story. The Government has promised to abolish the lifetime allowance completely from the 2024-25 tax year onwards, and we are waiting for an HMRC consultation to show how this could work in practice.
“However, Rachel Reeves, the shadow Chancellor, has described the reforms as a “tax cut for the rich” and pledged to unpick any changes, instead implementing a solution only for NHS staff. The amendment tabled is a strong signal that Labour is committed to this position.”
Vahey said the division between parties is creating uncertainty for advisers who are making decisions with their clients on how to take pension benefits and said they are now placed in the “unenviable situation of being piggy in the middle of a political pensions spat.”
Research by AJ Bell revealed that 72% of advisers expect a future government to reintroduce the LTA in some form, while a further 19% said they thought it was a possibility. In contrast, just 5% do not believe a future government will reinstate the LTA and 4% are unsure.
Anticipating the possibility of political to-ing and fro-ing, more than half of advisers said they expected at least some clients to crystalise before the next general election in an effort to mitigate any change in legislation that could land them with a tax charge.
