Labour may abandon reintroduction of LTA

The Labour Party may abandon its pledge to reinstate the lifetime pensions allowance (LTA), according to a report in the FT. The allowance was formally abolished with effect from 6 April, but there remain legislative changes needed to fully implement the new pensions tax regime. Before its abolition the lifetime allowance stood at £1,073,100. Industry experts said today that Labour is responding to criticism that reintroducing the LTA would cause major problems in pension planning. Graham Crossley, NHS pensions expert at Quilter, said: “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.” The Conservatives pledged to ditch the LTA more than a year ago but Labour had said it would reintroduce it, although no plans have been outlined as to how the reintroduction would happen. Rumours suggested that there would be a 'carve out' for the NHS to avoid penalising high earners, followed by the prospect of much higher upper threshold. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “For more than a year, while Labour failed to publish details of the reintroduction, rumours surfaced that there could be a special carve out for NHS doctors or that the allowance would be introduced at a higher level, which left people in limbo as to their retirement planning.” Quilter's Mr Crossley concluded that Labour has realised that each option would have sparked controversy. He said: “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 IFS think tank, reintroducing the charge at its previous level might raise almost £800m a year, but the damage to the NHS could far outweigh the increase in tax revenue. If Labour had pushed on with its plan it risked causing an exodus of senior public sector workers to avoid suffering punitive tax charges, warned Mr Crossley. He said: “Hopefully a clearer position will help stop senior doctors and medical professionals expediting retirement plans but whatever is announced in the manifesto will be crucial to those who might be impacted by the LTA.” The decision to drop the plans brings much-needed certainty to people’s retirement planning, said Ms Morrissey: “The news will be greeted with a sigh of relief by people who can now plan ahead for their futures with more certainty.” She said there were still tweaks to the rules in legislation needed to finalise the removal of the LTA when the election was called so it will be a relief to those planning their retirement that Labour has committed to dropping its plan. Jason Hollands, managing director at Evelyn Partners, said: "Labour’s plans to reinstate the pensions lifetime allowance sprang from a somewhat knee-jerk reaction to Chancellor Jeremy Hunt’s surprise announcement that the LTA would be scrapped in his 2023 Budget. "If reintroduction of an LTA is absent from the Labour manifesto on Thursday that will be welcome news, as the prospect of yet more tangled legislation to resurrect this punitive tax penalty on large pension pots and public sector pensions has caused considerable uncertainty." According to pensions consultancy LCP, the gap between the Government’s policy intentions and the legislation are so large that, “HMRC has been forced to recommend that some people delay retirement” where possible to avoid being caught by incorrectly drafted law. In March HMRC said that it intends to issue a second set of regulations changing the legislation governing the lifetime allowance abolition. The Finance Act 2024 set out the main legislation for the abolition of the lifetime allowance, including an unusual clause allowing the Treasury to make subsequent changes to the primary legislation through regulation.

Labour may abandon reintroduction of LTA - reports

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