Pension warning: Older Brits could be hit with ‘too high’ tax on savings under Labour: ‘Catastrophic consequences!’

Experts are warning of the ‘catastrophic impact’ on pension savings if Labor were to reintroduce ‘too high’ tax rates after a likely victory in the July 4 general election.

The official opposition under Sir Keir Starmer has promised to make changes to the pension system if returned to power following a review of pension savings rules under Chancellor Jeremy Hunt.

From April 2024, the lifetime allowance on pensions was effectively abolished, after being set at £1,073,100.

This was the amount of money someone could save if they had to pay an “excess charge” to HM Revenue and Customs (HMRC).

In addition, the Conservative Party increased the annual allowance for pension savings to £60,000 during her government.

Shadow chancellor Rachel Reeves has suggested that Labor would reintroduce the lifetime allowance, a move that could save the government up to £800 million a year.

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Jeremy Hunt

Chancellor Jeremy Hunt scrapped the lifetime allowance on pensions earlier this year

GB News

However, experts are warning the likely next ruling party over their reported plans to overhaul the UK pension system.

Megan Jenkins, the partner at Saltus, described Labour’s pension plan as “incredibly short-sighted” which could damage their hold on power.

She explained: “For many people the recent changes have little to no impact in the short term and the reality is that, although the lifetime benefit is named, in practice the amount of £1,073,100 is still being used towards the calculation of the fixed benefit. The lump sum benefit (LSA) and the lump sum death benefit (LSDBA).

“There are a limited number of people for whom the changes have had a positive impact in the short term.

‘If Labor were to reintroduce excessive charges on pensions it would have a catastrophic impact on whole sections of the public over time, as it penalizes savers and penalizes them for being long-term investors.

“Reintroducing this would run counter to the pledge to ‘deliver economic stability’ and potentially impact the source of funding for the ‘big British energy’ institution – ultimately this will likely require private sector money – likely from the UK pension funds to help realize this ambition.”

The annual allowance was first introduced by the then Labor government in April 2006 and set at £1.5 million.

Within its first few years of existence, the threshold was increased to £1.8 million in April 2010.

Former George Osborne reduced the allowance to £1 million in April 2016, while his successors gradually increased it to £1,073,000 in April 2020.

After this level was reached, the threshold for paying tax on pensions was frozen for a number of years and abolished by the Tories earlier this year.


Rachel Reeves

Rachel Reeves has suggested that Labor could reintroduce the lifetime allowance


In response to rumors of the return of the lifetime allowance, the Institute of Fiscal Studies (IFS) concluded that reintroducing the threshold in some capacity could be beneficial.

The think tank stated: “It would also be wise to go further than a simple reintroduction of the lifetime benefit at the old level.

“One option would be to reinstate the lifetime benefit at a higher value than the old level, in addition to a reduction in the new limit on the pension amount of which 25 percent will be exempt from income tax and a new limit (ideally zero, but any limit would be an improvement) of the pension amount that can be left free of inheritance tax.

“A reinstated lifetime allowance should also be less generous for defined benefit pensioners (compared to defined contribution pensions) than the benefit in place from 2006 to 2022, and especially for those who took their defined benefit pensions earlier.”