Pension providers have welcomed reports that Labour has U-turned on its pledge to reintroduce the lifetime allowance, which would raise nearly £800m a year. The British Medical Association had lobbied Labour not to bring back the tax threshold that bites mainly for high earners with defined benefit pensions.  

Chancellor Jeremy Hunt announced the abolition of the LTA, set at just over £1m and frozen until 2026, in his Budget 2023. At the time, he said the change would “stop over 80% of NHS doctors from receiving a tax charge”.   
 

It appears Labour has now also given in to the demands of the doctors’ union. A Financial Times report published on Sunday said the party has dropped its plan to bring back the LTA. 
 

Dr Vishal Sharma, who chairs the BMA’s pensions committee and consultants committee, said: “Since Labour announced its initial plans to reinstate the lifetime allowance, the BMA has been extensively lobbying the shadow team to warn them of the risks to the NHS of doing so. Although these are unconfirmed reports, it is therefore welcome that Labour has listened to our concerns and has reconsidered these plans.” 

  

The BMA had repeatedly warned that consultants would retire early or reduce their hours to avoid being subject to a pensions tax charge.  
  

Shadow chancellor Rachel Reeves previously said a Labour government would reintroduce the allowance, although there were later reports the party was considering a carve-out for doctors, before denying this later.
   

      

The pensions industry has welcomed the reports of Labour’s U-turn. Mike Ambery, retirement savings director at Standard Life, said the LTA had become “increasingly problematic” because some savers felt punished for doing the right thing.   

“The annual allowance already places an effective cap on the amount people can pay into a pension, so many felt the LTA was unnecessary,” he added.  

Competitor Aegon also sees Labour’s decision not to bring the LTA back should it win the next general election as positive. Pensions director Steven Cameron argued the LTA abolition had been designed to keep NHS doctors in the workforce and that all parties should support this.  

“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,” Cameron said, with the rules removing the LTA still not finalised and other pension issues being more pressing. 

He also remarked that “the next government should ensure HMRC plugs the gaps” so that pension savers currently in limbo on whether the LTA applies can sort out their affairs.  

Some pension professionals had previously warned reintroducing the LTA would be very complicated – its abolition was already not straightforward, as it came with new limits on tax-free cash. HMRC guidance has also led to some confusion, not least when it suggested after the abolition that some scheme members might still want to delay transferring or taking benefits until a further set of regulations was in place.  
 

The Institute for Fiscal Studies, an economic thinktank, recently said the case for wider pensions tax reforms was stronger than bringing back the LTA. It suggested several reforms saying if these were introduced, the LTA could be set at a higher level. 
   

   
The Labour party has been contacted for comment.

How do you view Labour’s reported U-turn on the LTA?