The lifetime allowance, or LTA, is a bad tax. It makes no sense. It should have been scrapped years ago. Finally, Chancellor Jeremy Hunt did the right thing and got rid of it.
Hunt announced the move in last year’s Budget in March 2023. The pensions lifetime allowance was dropped on the first day of the current financial year, April 6, 2024.
That really should have been the last of it.
The lifetime allowance slaps a brutal 55 percent charge on anybody who works hard and saves a decent-sized sum for their retirement.
Which is what the government wants us to do, to ease the burden on the state.
The levy kicks in at a totally arbitrary level of £1,073,100, which has been repeatedly cut in Budget after Budget. Up to two million may pay it.
Pension experts have labelled the LTA horrifically complex, because nobody knows whether they will get caught from one day to the next.
This makes pension planning impossible.
It’s such a dreadful tax that Labour leader Keir Starmer has moved heaven and earth to make sure he will never pay it himself.
As I revealed last month, 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 let others pay.
We’ve already seen Labour’s double standards with deputy leader Angela Rayner’s dodgy property dealings. It’s starting to form a pattern.
Hunt barely had time to sit down after announcing he was scrapping the lifetime allowance before shadow chancellor Rachel Reeves stood up and said she would bring it back.
Which shows how much thought she has put into it.
Labour said that scrapping the LTA was a tax break for the Tory’s rich mates, which is ironic given Starmer’s position.
With the nation’s finances under pressure, I accept we have to limit pensions tax breaks for the better off. It’s just that the LTA is a terrible way of doing it.
It’s wrong to set a lid on how much people’s pensions can grow. This is punishing investment success. Reeves would be wiser to cut the amount pension savers can pay in and claim tax relief.
She could do this by slashing the annual allowance on pension contributions from today’s £60,000 to just £40,000 or £30,000 if she chose.
That would still be a blow for the better off, but it will be much clearer to understand and plan around.
Instead, she wants to revive a bad tax to make a cheap political point. It’s a terrifying insight into Labour’s priorities.
READ MORE: Labour’s brutal 55% pension tax smashes savers to prove cheap political point
The LTA has backfired because many public sector workers – notably top NHS surgeons – have quit work because they can’t see the point of building up more pension once they exceed the lifetime allowance.
Police officers, senior teachers, military top brass and successful entrepreneurs also lose a huge incentive to carry on working once they neared the cap.
We are losing valuable people, and gaining next to nothing in extra tax either.
Labour has said it will reinstate the LTA “in a way that ensures we retain public sector leaders”.
In other words, it’s going to free senior public sector workers to build up as much pension as they like, funded from the public purse.
At the same time, those in the private sector will be subject to a cruel and counter-productive pensions cap.
For years, former Labour Chancellor Gordon Brown tinkered with our pensions to the point of destruction (while never taking on vast public sector pensions). Now we’re facing it all over again, under Starmer and Reeves. What a prospect.
