10 June 2024 , 09:06
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Labour will not bring back the pensions lifetime allowance if it wins the General Election, Sir Keir Starmer has said.
The Labour leader confirmed the party would not reintroduce the allowance during an interview with LBC, following reports that Labour had U-turned on its plan to do so. The lifetime allowance was the total value of your pensions you could build up throughout your lifetime without incurring a tax charge. This limit was £1,073,100 for most people, but Chancellor Jeremy Hunt confirmed it would be ditched in his Budget last year.
Asked whether Labour was abandoning plans to bring back the limit, Sir Keir said: "I mean, as far as the pensions are concerned, that is the position now and there's been so much chopping and changing that we just need... one of vital things we need in our economy now is some stability. So that's why we've done that."
Asked to confirm whether that was Labour's position, Sir Keir said: "Yes it is. And for that reason, because I think there's one thing that people tell us, businesses tell us, the chopping and changing, the chaos in the economy that's causing a massive headache."
The lifetime allowance was replaced with new lump sum allowance of £268,275 and a new lump sum and death benefit allowance of £1,073,000. The move was welcomed by higher earners and senior NHS doctors who often surpassed the allowance. In 2021-22, around 11,000 people paid an average charge of £40,000 on their pension savings which exceeded the cap.
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Labour criticised the move at the time describing it as “the wrong priority, at the wrong time, for the wrong people”. However, the party did note that it would carve out specific rules for NHS doctors when they brought back the lifetime allowance.
Recently it was reported that "thousands" of investors who had large pension pots had been left in "limbo" due to errors in the legislation removing the lifetime allowance. According to Labour sources, Reeves has decided to U-turn on the move as they did not want to add to the uncertainty.
A Labour source said: “The Conservatives have botched their policy of abolishing the lifetime allowance, with thousands of people approaching retirement being left in limbo because of errors in legislation." The source said Reeves would “sort out the mess”, adding: “Labour’s priority is to bring stability and certainty back to the economy.”
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group said the prospect of a potential reintroduction would have "loomed large" in the minds of those savers with bigger pensions approaching retirement. He added: "Many of these individuals will have been weighing up whether to continue paying in above the old limit or not while uncertainty remained.
“Prior to its abolition, the lifetime allowance had become increasingly problematic as some savers felt punished for doing the right thing and saving regularly and investing well. The annual allowance already places an effective cap on the amount people can pay into a pension so many felt the lifetime allowance was unnecessary.”
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 finishing the job."
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 a 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."