Labour ditches plans for lifetime allowance public sector carve-out

by | Feb 29, 2024

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  • Labour has scrapped plans to create a lifetime allowance carve-out for certain public sector pension schemes, according to reports (Source: Thousands of workers face huge retirement penalty under Labour as proposal to protect pensions from tax is SCRAPPED | The Scottish Sun)
  • Chancellor Jeremy Hunt announced the abolition of the lifetime allowance in his March Budget, with the limit due to be formally scrapped from April this year
  • Labour had previously suggested it would reintroduce the lifetime allowance but provide an exemption for the NHS scheme
  • The opposition party has now abandoned that proposal and instead plans to reintroduce the lifetime allowance at a level which reflects pressures facing public sector workers
  • AJ Bell warns reintroducing the lifetime allowance would create huge complexity and send a damaging message to savers

Tom Selby, director of public policy at AJ Bell, comments:

“Scrapping the pensions lifetime allowance tax charge was a hugely positive move by the chancellor which at a stroke eased the strain on the NHS by removing the pension penalty thousands of senior doctors faced by taking on extra hours. The decision was also a big positive for savers, who are no longer unfairly punished for doing the right thing and saving for their future.

“Labour’s proposal to reinstate the lifetime allowance but create a carve-out for certain public sector schemes would have created a two-tier system and been deeply unfair, particularly given the defined benefit schemes public sector workers enjoy are already significantly more generous than the average pensions enjoyed by their private sector counterparts.


“While it is good news Labour has ditched plans for this public sector carve-out, the party’s apparent insistence on bringing back the lifetime allowance if elected is concerning. Pursuing this policy would create huge, unwelcome complexity in the pension system and send a worrying message to savers and would-be savers. 

“Fear of the lifetime allowance returning if Labour wins the election is already having an impact. Anecdotal evidence suggests savers are considering making decisions about their pension today – namely ‘crystallising’ their fund before the general election – in order to avoid a potential future lifetime allowance tax charge. The fact people are feeling forced into making a decision about their retirement pot based on something so uncertain is worrying and risks resulting in poor consumer outcomes. As a general rule, it is sensible to deal with the tax rules as you find them, rather than trying to second-guess what may or may not happen in the future.

“This is all entirely unnecessary. If Labour’s policy aim is to limit spending on pension tax relief, the annual allowance provides a much simpler mechanism to achieve this aim. But whatever the intention, we need Labour to come clean about their plans so savers can plan for the future with at least some clarity.”


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