Pensions ‘relief’ as Labour scraps plans to reintroduce tax-free allowance | Personal Finance | Finance
The Labour Party has reportedly shelved plans to reintroduce the pensions lifetime allowance in a relief to people planning for their retirement.
There were previous concerns bringing back the cap could lead to the return of the doctors’ strikes, but Labour bosses have reportedly now axed the plans.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “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 lifetime allowance when the election was called.
“It will be a relief to those planning their retirement that Labour have committed to finish the job.”
Ms Morrissey said the removal of the lifetime cap is important for all pension savers. She explained: “The Conservatives pledged to ditch the lifetime allowance over a year ago and now with a cross-party consensus 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.”
Graham Crossley, NHS pensions expert at Quilter, said it was a ‘sensible’ move for Labour to scrap the policy if Sir Keir Starmer‘s party wins the election.
He said: “Labour’s supposed U-turn on reinstating the lifetime allowance 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.
“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.
“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 Institute for Fiscal Studies, reintroducing the charge at its previous level might raise almost £800 million a year, but the damage to the NHS could far outweigh this increase in tax revenue.”
The allowance capped how much an individual could withdraw from their pensions without paying extra tax at £1,073,100 over their lifetime. It was removed at the start of this tax year.
Pension savers may also want to note their annual allowance, the tax-free limit on how much they can save into the pensions each year, which is currently £60,000.
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