No more lifetime allowance?

The 7th June was the day of Labour’s ‘Clause V’ meeting at which, according to Politico, nearly 100 senior party personnel signed off the election manifesto ahead of its publication on Thursday 13 June. Allowing that number of people sight of any document, yet alone one as sensitive as a manifesto, increases the chance of leaks and that is what appears to have happened over the weekend.

A report on the Financial Times website on late Sunday evening said that the manifesto would not contain plans to reinstate the pension lifetime allowance (LTA). While there are only a few days to go before we discover the veracity of the FT’s apparent scoop, there are good reasons to believe it may be true:

  • The original LTA reinstatement pledge was made in response to the March 2023 Budget. At the time Rachel Reeves described Hunt’s moves as ‘…the wrong priority, at the wrong time, for the wrong people’. Since then, nothing of any significance about LTA reinstatement has emerged from Reeves or other Treasury shadows.
  • Earlier this year there were press reports that Labour was considering carve outs for the NHS and, subsequently, the civil service. These were followed by suggestions that nobody would escape LTA Mk II. Carve outs always looked difficult, e.g. in terms of employment definition and handling job changes. However, the issue of NHS staff has not gone away, as the BMA underlined in a May press release commenting on Labour’s pledge to reduce waiting times.
  • The complexity of the task of removing the LTA became apparent and with it the corollary of the legislative challenge of reversing the process. Sunak’s surprise election call meant the Finance (No 2) Act rapidly became law with outstanding legislation to correct errors in its predecessor left it limbo. These glitches are already stalling some transfers. Any move to revive the LTA would face the issue of dealing with the existing incorrect drafting.
  • The timing of the election also presented an obstacle for LTA reinstatement. As Steve Webb recently pointed out, it would be virtually impossible for Reeves to bring in a fresh LTA before April 2026, given her first Budget will not be until at least mid-September. A 21-month gap between election day and a new A-Day could well see a pre-emptive wave of large pension top ups and NHS retirements.
  • As we mentioned in our recent Bulletin on the IFS’s LTA and other pension proposals, the estimated £800m medium term revenue gain from unwinding Hunt’s 2023 LTA announcement was never included in Labour’s list of new tax revenue, so its disappearance does not create another black hole (no doubt to be filled by cracking down on tax avoidance…).

Maintaining the current LTA-free structure does not mean that pensions escape other potential tax-raising measures. These could include:

  • The IFS favourite of bringing into the inheritance tax (IHT) net unused funds at death.
  • Reducing the maximum tax free cash.
  • Moving to a flat rate of income tax relief.
  • Scrapping employer’s National Insurance (NIC) relief on pension contributions.
  • Applying NICs, probably at an initially reduced rate, to pension income.


In the end it may have been the sheer practical difficulties of LTA reinstatement which sunk the idea. Thursday might provide some enlightenment.  

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