Reportedly, Labour will not look to introduce the LTA if they come into power in July. The standpoint is expected to be published in the labour Manifesto due out this week.
This news was met with a sigh of relief by the pensions industry, following months of speculation.
Chancellor Jeremy Hunt first announced in the 2023 Budget that the LTA of £1,073,100 would be scrapped to allow people to save into their pension without the danger of being penalised. The reform followed concerns that the taxation rules had led to significant numbers of senior doctors and NHS workers reducing their hours or taking early retirement to avoid being hit with an unexpected tax bill.
The move was met with criticism from the Labour party, who went on to suggest that they would reinstate the tax in some form, although they did not outline how a reintroduction would work. However, the Financial Times has reported that the party has backtracked on its pledge, providing greater clarity for pension savers.
Helen Morrissey, head of retirement analysis at Hargeaves Lansdown, said: “The game of Lifetime Allowance hokey cokey looks to have finally drawn to a close. The news will be greeted with a sigh of relief by people who can now plan ahead for their futures with more certainty.
“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. This left people in limbo as to their retirement planning. The conservatives pledged to ditch the LTA over a year ago and now with cross-party consensus people can move forward with their planning. 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.”
Graham Crossley, NHS pensions expert at Quilter, also welcomed the news.
“Labour’s supposed U-turn on reinstating the LTA is sensible and shows that it has listened to the serious concerns being raised not only by its plans but also simply the lack of clarity about how a reintroduction would work.
“If Labour did push on with its plan it risked causing an exodus of senior public sector workers to avoid suffering punitive tax charges. 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.”
Industry commentators agree that while the policy of giving tax breaks to high earners may not align with traditional Labour policy, attempts to reinstate it could have tied the pensions industry in knots. Instead, they have called upon the next government to focus on simplifying the pensions landscape.
Tom Selby, director of public policy at AJ Bell, commented: “The decision to scrap the pensions lifetime allowance for good in April this year was both necessary and sensible. 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.”
For Steven Cameron, pensions director at Aegon, there are more pressing concerns for the Labour party to deal with than attempting to reinstate the LTA.
“There are many more greater pension priorities, such as implementing the 2017 auto-enrolment reforms and improving retirement income adequacy for an incoming government to progress. The rules removing the LTA have still not been finalised and the next government should ensure HMRC plugs the gaps so those individuals currently in limbo can sort out their pension affairs,” he added.
