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Pensions industry welcomes Labour u-turn on LTA

Rachel Reeves
Rachel Reeves: plans to reintroduce the cap have been dropped (pic: Terry Murden)

Labour no longer plans to reintroduce a cap on how much people are allowed to save into their pensions before paying tax.

The policy u-turn followed lobbying from senior NHS doctors and has been welcomed by the pensions industry.

The Conservatives scrapped the lifetime allowance, which meant a pension pot of over £1.07m faced an annual average tax of £40,000.

Shadow chancellor Rachel Reeves had planned to bring it back, on the assumption it could raise £800m a year.

But Labour has now decided to stick with the Tories’ plan, much to the relief of the industry and those most affected, many of them top doctors who were quitting to avoid tax payments.

Steven Cameron, pensions director at Edinburgh-based Aegon, said: “The removal of the LTA by the Conservatives was designed to stop pensions tax rules encouraging higher paid professionals in the NHS from retiring to avoid tax charges. This is something that all political parties should support. 

“We understand that the abolition might appear like a tax break for high earners, and not aligned to traditional Labour policy. But the removal has proven excruciatingly complex and attempts to reinstate could have tied the pensions industry, as well as a new government, in knots.

“There are many more greater pension priorities, such as implementing the 2017 auto-enrolment reforms and improving retirement income adequacy for an incoming government to progress.

“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.”

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