- Labour drops plans to reinstate the lifetime allowance
- End of uncertainty for pension investors
The Labour Party has backtracked on its plans to bring back the lifetime allowance (LTA) in it wins the election next month, in a welcome move for pension investors.
The reintroduction of the LTA will be absent from the party’s election manifesto when it is published on Thursday, the Financial Times reported. Shadow chancellor Rachel Reeves reportedly dropped the proposal because it would add uncertainty for savers and be complex to reintroduce.
The LTA capped the amount people could hold in their pensions tax-free at £1,073,100. Chancellor Jeremy Hunt abolished it in 2023 as part of a bid to discourage older workers, particularly NHS doctors, from retiring. At the time, Labour pledged to reinstate the LTA if it came to government, with Reeves deeming its abolition “the wrong priority, at the wrong time, for the wrong people”.
But experts warned bringing it back would be no easy feat and further complicate an already convoluted system. Despite it becoming law last April, the regulations for the abolition of the LTA are still being ironed out after encountering a series of issues and delays. Savers also faced considerable uncertainty as they waited for news on what would happen to the allowance under a Labour government.
While there are still limits on how much savers can contribute to their pensions every year, the LTA abolition makes pensions even more attractive both to save for retirement and to reduce inheritance tax (IHT). The LTA was considered problematic because by capping the amount people could hold tax-free in their pensions, it also punished investment growth.
Jason Hollands, managing director at Evelyn Partners said that Labour’s plans to reinstate the LTA were “a somewhat kneejerk reaction” to its abolition and that this is “welcome news”.
“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 over the last year for those deliberating whether or not to add to their savings,” he added.
