Pensions warning as ‘short-sighted’ Labour policy could see return of doctors’ strikes | Personal Finance | Finance
A Labour policy to bring back the pensions lifetime allowance would be “catastrophic” for pension savers and could bring back the doctors’ strikes, an expert has warned.
The allowance capped how much a person could withdraw from their pensions without paying extra tax at £1,073,100 over their lifetime, with the policy scrapped at the start of this tax year.
But Labour has set out plans to reintroduce the allowance if elected to power on July 4. Megan Jenkins, partner at Saltus, said: “Whilst Labour has stated that they wish to roll back some of the latest pension changes, this could prove incredibly short sighted and create an immediate headache for the new administration.
“Many of the recent changes were driven by the need to placate senior NHS employees and formed part of the agreement to end the strikes over the past two years.
“The pledge to ‘Cut NHS waiting times’ and then have doctors go back on strike seems an Orwellian twist right out of 1984.”
Mr Jenkins warned bringing back the allowance would damage the prospects of many pension savers.
He said: “For many people, the recent changes have little to no impact in the short term and the reality is that although the lifetime allowance has gone in name, in practice, the £1,073,100 amount is still used within the calculation of the lump sum allowance (LSA) and the lump sum death benefits allowance.
“There are a limited number of people to whom the changes have created a positive impact in the short term. If Labour were to reintroduce the excess charge on pensions, that would have a catastrophic impact on whole swathes of the public over time as it punishes savers and penalises them for being long term investors.
“Reintroducing this would go counter to the pledge to ‘deliver economic stability’ and potentially impact the source of funding for the ‘great British energy’ institution.
“Ultimately, this is likely to need private sector money – probably from the UK pension funds to help deliver this aspiration.”
Tim Blowers, chartered financial planner and pensions specialist at Old Mill, spoke about what pension savers can do with the potential for the lifetime allowance to be reintroduced.
He said: “The current rules for tax-free cash haven’t changed significantly, so if there’s a good reason you want to keep it in the pension then it probably should stay in there.
“However, if you were planning to take your lump sum soon, doing so now could help you avoid potential adverse changes.
“For those over or close to the lifetime allowance with defined benefit pensions who haven’t taken a tax-free lump sum – and also have uncrystallised defined contribution pensions – the current rules allow for higher PCLS (pension commencement lump sum) than if the lifetime allowance returns without transitional protections.”
Mr Blowers also said pension savers may want to take action now as there is speculation Labour could reduce the pensions allowance of £60,000 and change the rules for using allowances from previous years.
He explained: “Currently you can take advantage of unused allowances from the previous three tax years.
“Therefore, if affordable, it is worth considering bringing any pension contributions planned for later in the year forward to before the election and making use of any unused allowance from previous years; that could mean you’re able to make a pension contribution of up to £200,000 – including tax relief – in 2024/25.
“Tax relief on pensions is also an area that could see changes under Labour, as Rachel Reeves has discussed replacing marginal rate tax relief with a flat rate, possibly around 30 percent.
“Higher and additional rate taxpayers currently enjoy 40 percent or 45 percent tax relief on pension contributions, which is another reason why they might want to make any planned contributions sooner rather than later.”
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