'Sigh of relief' as Labour drops plans to bring back LTA

The pensions industry has expressed its relief following reports that Labour has dropped plans to reintroduce the lifetime allowance if elected, as a result of industry concerns around the uncertainty for savers and the complexity involved.

Chancellor, Jeremy Hunt, previously announced plans to abolish the LTA in his 2023 Spring Budget, with the Finance Act 2024 delivering an amended pensions tax regime, effective from 6 April 2024, which replaced the LTA on most pension and lump sum benefits with two new allowances on most lump sum benefits.

However, the Labour Party had previously suggested that it would look to reinstate the pensions LTA, arguing at the time that the government's plan to abolish the allowance was the “wrong priority, at the wrong time, for the wrong people”.

A number of industry organisations raised concerns over the uncertainty facing savers as a result of this, also warning that reinstating the LTA would be “far from straightforward", amid concerns that any re-introduction of the allowance would cause an "incredible amount" of disruption and confusion.

However, according to reports from the Financial Times, Shadow Chancellor, Rachel Reeves, has now dropped the proposal from Labour’s election manifesto, because it would add uncertainty for savers and be complex to reintroduce.

Hargreaves Lansdown head of retirement analysis, Helen Morrissey, said this news will be greeted with a “sigh of relief” by people who can now plan ahead for their futures with more certainty.

She also argued that "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".

AJ Bell director of public policy, Tom Selby, echoed this, arguing that Labour “deserves credit” for recognising industry concerns and dropping plans to reintroduce the limit, “a move which would have risked hitting senior public servants, including doctors, with huge tax bills, added unwelcome complexity to the pensions tax system and unfairly penalised those who enjoy strong investment growth”.

“Labour’s commitment to stability should give savers confidence to plan for the future,” he added.

“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.”

Aegon pensions director, Steven Cameron, also argued that "there are many more greater pension priorities" for an incoming government to progress, such as implementing the 2017 auto-enrolment reforms and improving retirement income adequacy.

“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 stated.

The news that the LTA will not be reinstated is expected to be particularly helpful for those in the NHS, as the British Medical Association (BMA) previously warned that the lack of clarity around Labour's plans could risk an “exodus” of the NHS's most senior clinicians.

Indeed, Quilter NHS Pensions expert, Graham Crossley, said that the “supposed U-turn” was sensible and showed that the party 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," he stated.

“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.”

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