Published On: Thu, May 16th, 2024
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Fury as Labour lines up ‘heinous’ 55% pension tax on savers who ‘do the right thing’ | Personal Finance | Finance

While leader Keir Starmer and shadow chancellor Rachel Reeves are reluctant to release too much detail in case it scares the voters, we do know one thing. They are hellbent on reversing a recent pensions tax break introduced by chancellor Jeremy Hunt.

In his Budget in March 2023, Hunt announced that he would scrap the pensions lifetime allowance (LTA) from April this year.

It was a sensible move, one that the Daily Express had been demanding for years.

The lifetime allowance slaps a brutal 55 percent charge on anybody who works hard and saves a decent-sized sum for their retirement.

This brutal levy kicks in at a totally arbitrary level of £1,073,100. It used to be much higher but was repeatedly cut by chancellors desperate to raise cash from hard-working voters.

As most pension savers will not have anywhere near that amount, it seems like an easy way for Labour to raise money. Most voters won’t protest because the LTA probaly won’t apply to them.

However, voters should be worried, because it shows how the Labour Party is willing to play politics with other people’s money.

Pension experts have labelled the LTA horrifically complex, because nobody knows whether they will get caught from one day to the next, making pension planning impossible.

It’s such a rotten tax that Labour leader Keir Starmer has made a huge effort to ensure he will never pay it himself.

As I revealed in February, Starmer has carved out a very cushy pensions deal. None of his estimated £1million public sector pension pots will be subject to the LTA.

There is no lifetime cap on his pension, but he’s happy to impose it on others. Including, it seems, desperately needed NHS doctors.

Moments after Hunt announced he was ditching the lifetime allowance, Rachel Reeves stood up and said she would bring it back.

It was a reckless and thoughtless move, but Labour hasn’t reversed it since.

Restoring the LTA would be a disaster, said pensions expert Tom Selby, director of public policy at AJ Bell, who told me: “The lifetime allowance was a horrendous part of the pensions system. It brutally punished people who did the right thing and saved diligently for their retirement.”

He said any pension saver who enjoys strong investment growth risks being penalised through this “heinous 55 percent tax charge”.

“It has forced thousands of senior consultants in the NHS to retire early, piling more pressure onto an already creaking NHS in the wake of the pandemic.”

Selby said Hunt’s decision to axe the lifetime allowance “was a big step in the right direction”.

He said any attempt to reinstate the policy must be fiercely resisted.

Uncertainty over Labour’s tax plans have put pension savers in an impossible position. They can’t plan ahead, as they don’t know whether the lifetime allowance will still be in force in future.

Selby said this lack of clarity over Labour’s position is leaving savers in limbo, uncertain of how the LTA would apply if Starmer and Reeves were to reintroduce it.

He said the lifetime allowance doesn’t just hit the super-rich. “It risks capturing vast swathes of middle Britain if they save a decent amount from a relatively young age.”

The government can already control pensions tax relief through the annual allowance, which limits contributions to a maximum of £60,000 a year and is easy to understand.

Selby said that would be a much simpler way of saving money. “Reintroducing the lifetime allowance would be a complex nightmare and should be avoided at all costs.”

The problem is that Labour is restoring the LTA for dodgy political reasons – to look like they’re bashing they’re rich – rather than for sound financial ones. It’s a worrying sign of what’s to come.

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