- Labour has previously indicated it would re-instate the Lifetime Allowance (LTA) were it to win the next election
- In proposed amendments to the Finance Bill, published this week, Labour has called for the Chancellor to consider an alternative approach that provides LTA changes only for NHS doctors
- The Finance (No. 2) Bill 2023 is currently passing through Parliament and is expected to receive Royal Assent by next month. These amendments are expected to be debated at Report Stage on 19 June 2023
- The Finance (No. 2) Bill includes changes to stop LTA charges from ever arising, as well as increasing the annual allowance. The government plans to abolish the LTA completely in a future Finance Bill
- AJ Bell research shows 72% of advisers expect a future government to re-introduce the LTA in some form
Rachel Vahey, AJ Bell head of policy development comments:
“This feels very much like political posturing. It’s highly unlikely the proposed amendment will be accepted. But it does strongly signal that Labour objects to the changes, and instead it is putting down a marker in the sand that it believes the pension pain should only be eased for NHS doctors.
“The Finance Bill is progressing through Parliament. The changes massively simplify the pensions tax rules. Advisers and their clients can now consider how the change to stop lifetime allowance charges from arising impacts retirement strategies, and what choices and opportunities the new tax rules offer.
“Of course, this is only half the legislative story. The government has promised to abolish the lifetime allowance completely from the 2024-25 tax year onwards, and we are waiting for an HMRC consultation to show how this could work in practice.
“However, Rachel Reeves, the shadow Chancellor, has described the reforms as a “tax cut for the rich” and pledged to unpick any changes, instead implementing a solution only for NHS staff. The amendment tabled is a strong signal that Labour is committed to this position.
“This introduces uncertainty for advisers and their clients who are making decisions on how to take pension benefits. It’s impossible to say today what the future holds and what changes will be introduced in future tax years by the current government, or Labour if they are elected. We simply do not know, meaning advisers and their clients have been put in the unenviable situation of being piggy in the middle of a political pensions spat.”
Proposed amendments to the Finance Bill
In the most recent amendment paper, James Murray, the Shadow Financial Secretary to the Treasury, has moved the following Clause:
“Review of alternatives to the abolition of the lifetime allowance charge
1) The Chancellor of the Exchequer must, within six months of this Act being passed— (a) conduct a review of the impact of the abolition of the lifetime allowance charge introduced by section 18 of this Act and other changes to tax-free pension allowances introduced by sections 19 to 23 of this Act, and (b) lay before the House of Commons a report setting out recommendations arising from the review.
2) The review must make recommendations on how the policies referred to in subsection (1)(a) could be replaced with an alternative approach that provided equivalent benefits only for NHS doctors.”
The explanatory statement is that this new clause requires the Chancellor to review the impact of the tax-free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.
Advisers plan ahead
A survey of advisers conducted by AJ Bell shows that the majority of advisers (72%) expect a future government to re-introduce the LTA in some form*.
A further 19% said they thought it was a possibility, while just 5% don’t believe a future government is likely to bring back the LTA and 4% felt unsure.
Anticipating the possibility of political flip-flopping on pension taxation, more than half of advisers surveyed said they expected at least some clients to crystalise before the next general election in an effort to mitigate any change in legislation that could land them with a tax charge.
*AJ Bell survey with financial advisers. 224 responses gathered in April 2023
