Labour rumoured to have dropped plans to reinstate the pensions lifetime allowance in boost to wealthy savers

Labour is rumoured to have u-turned on its plans to reinstate the pensions lifetime allowance which would be a boost wealthier savers.

The Government abolished the old £1.073million lifetime allowance last year, but Labour said at the time the party would bring it back if elected.

However, shadow chancellor Racheel Reeves has dropped the proposal from Labour’s manifesto which is set to be unveiled this week, according to the Financial Times.

Labour had previously said it was the ‘wrong priority’ but party sources told the FT that reinstating the allowance would be complex and add uncertainty.

We explain the details of the controversy over the lifetime allowance in our guide to what the election could mean for your pension.

Jason Hollands, managing director at wealth management firm Evelyn Partners, said: ‘Labour’s plans to reinstate the pensions lifetime allowance sprang from a somewhat knee-jerk reaction to Chancellor Jeremy Hunt’s surprise announcement that the LTA would be scrapped in his 2023 Budget.

‘If reintroduction of an LTA is absent from the Labour manifesto on Thursday that will be welcome news, as the prospect of yet more tangled legislation to resurrect this punitive tax penalty on large pension pots and public sector pensions has caused considerable uncertainty over the last year for those deliberating whether or not to add to their savings.’

Chancellor Jeremy Hunt ditched the cap on tax-free pension savings from April 2023, but the annual allowance remains in place. This is the amount you can put in your pension every year and qualify for tax relief on what you saved.

It was increased from £40,000 in April 2023, and is currently £60,000, or up to 100 per cent of your annual earnings if they are lower than this.

The system was largely overhauled to appease senior doctors, who were being penalised due to extra shifts and overtime, and were often hit with large and unexpected charges for exceeding the allowance.

Tom Selby, AJ Bell director of public policy, said: ‘Labour’s commitment to stability should give savers confidence to plan for the future. 

‘This move also supports wider efforts to boost investing, including in UK companies. 

‘Any pension tax reform taken forward by the next government should focus squarely on simplification and encouraging more people to save for the long term.’

Labour and the Tories have both promised to keep the state pension ‘triple lock’ for the whole of the next parliament. 

The triple lock means the state pension is set by whichever is the highest of inflation, average earnings growth or 2.5 per cent. 

Pensioners recently received an 8.5 per cent in their state pension in April, boosting the headline rate to £221.20 a week or £11,500 a year.