US Edition
We are days away from hearing what Labour has in store for Britain when the party’s general election manifesto is published.
But savers must already be fearing the worst. Sir Keir Starmer’s party has developed a habit of doubling-down on policies that it just doesn’t seem to have thought through.
The tax raid on private school education is prompting warnings from across the political spectrum – headteachers, parents and even the unions – but still, Labour doesn’t seem interested in listening.
The latest disaster on the cards is the news that senior doctors are quitting the NHS in fear of six-figure tax bills because of Labour’s rash promise to reintroduce the lifetime allowance on pension savings.
Chancellor Jeremy Hunt abolished the £1.07m cap because it was forcing NHS doctors to take early retirement. Labour instantly swore to bring it back because, presumably, it couldn’t be seen to support a tax cut for the well-off.
And, despite warnings that it will cause chaos, the party has stuck to its guns and continues to insist it will bring it back in a “fair and reasonable” way. What is “fair and reasonable” to Labour is of course unlikely to feel fair and reasonable to those caught out by it.
So far Labour has only made a vague, but still unsettling, promise that the allowance will return in a way that ensures the party retains “public service leaders”.
A party spokesman said: “Our solution will, as well as doctors, cover other leaders across the public and private sectors.”
So it seems that Labour is going to bring back the lifetime allowance, but with some sort of tax break for the people it deems special. This not only sounds impractical and unworkable, but astonishingly unjust.
We can only hope those writing the manifesto bother to speak to anyone in the pensions industry before the party commits to such a thing.
Labour seems to be insisting on the return of the lifetime allowance because of spite alone.
However, if Labour brings back the allowance, it needs to ensure that it is fair for all – and not just those who are inconveniently rich for the party’s own ambitions.
The only way of doing this without upsetting the doctors is to bring it back at a much higher level, perhaps even £2m.
But there is of course no reason for the party to resurrect the cap. The lifetime allowance was always an unfair tax trap that punished investment growth rather than contributions made. Those with pension pot savings who exceeded the cap were taxed extra both on deposits as well as gains.
This is in contrast to those, mainly public sector workers, whose salary linked “defined benefit” pensions had to be worth an awful lot more to get even close to breaching the allowance.
This is because when Labour chancellor Gordon Brown introduced the lifetime allowance in 2006, salary linked pensions were valued using interest rates at the time. The formula stayed in place, despite becoming outdated as the markets changed.
Last year, pension firm Canada Life found that a public sector worker could receive a retirement income of close to £54,000 a year without breaching the allowance, yet a private sector worker would get little over £40,000 if using their pot to buy an annuity.
Regardless, Labour has also chosen to ignore the fact that the annual allowance on pension contributions still remains in place and already restricts a saver’s tax-free contributions. The lifetime allowance was always a needless excess.
Labour has perhaps forgotten the damage it has already done to this country’s retirement prospects. Mr Brown’s decision to strip away tax relief for pension funds on dividends effectively killed off final salaries for most private sector workers.
The beauty of public sector pensions, and the few defined benefit schemes that remain in the private sector, is that the worker doesn’t have to worry about saving enough or investment performance. The pension scheme (but usually the taxpayer) will guarantee you a decent income in retirement.
Mr Brown’s raid on private sector pension schemes took that security away from millions of workers who are now left to their own devices, with their own decisions around contributions and investments making all the difference between a comfortable and miserable retirement.
It’s now disturbingly clear that Labour still hasn’t got a clue about pensions. The party is so desperate to be seen to be doing the right thing by the sacred NHS that it is forgetting that the decent thing to do would be to just leave all of our retirement savings well alone.
Labour is about to inflict a grave pensions injustice
Lifetime allowance risks being reimposed on all but a handful of ‘public service leaders’