The Institute for Fiscal Studies has urged Labour to ‘implement a comprehensive and lasting reform which could rationalise, simplify and make fairer the current system of pension taxation whilst also raising revenue in the medium term’. But in the absence of such reform, ‘there is a case for Labour’s proposed reinstatement of the lifetime allowance and, were Labour to form the next government, it would be best advised to implement any reform swiftly’, the think tank says.
Shadow Chancellor Rachel Reeves had said that a Labour government would reintroduce the pensions lifetime allowance following the announcement of its abolition by chancellor Jeremy Hunt in his March 2023 Budget. But the Labour Party has yet to confirm its plans for pensions tax.
According to the IFS, reintroducing the charge at its previous level might raise almost £800m a year. However: ‘that would represent a missed opportunity to improve and rationalise the system of pensions taxation. That could include – among other things – a more generous annual allowance, a reduction in the cap on the amount that can be taken from a pension pot completely free of income tax and a new cap on the amount of pension wealth that can be bequeathed at death free of inheritance tax. In fact, the case for this latter set of reforms is stronger than the case for reimposing the lifetime allowance. If these latter reforms were included in a policy package, there would be a case for setting any reintroduced lifetime allowance at a higher level than previously.’
Carl Emmerson, Deputy Director of the IFS, said: ‘Given the current way in which we tax pensions there is a case for reintroducing a lifetime allowance. But that is mainly because so many other aspects of the system are overly generous to high earners who get sizeable employer contributions and accumulate big pension pots. Rather than a simple kneejerk return to the system of two years ago, a new Labour Chancellor would be well advised to implement a comprehensive and lasting reform which could rationalise, simplify and make fairer the current system of pension taxation whilst also raising revenue in the medium term. The danger is that a reintroduced lifetime allowance ends up being just another bump in the pensions tax road, and another missed opportunity to rationalise the system with a coherent package of measures.’
The Institute for Fiscal Studies has urged Labour to ‘implement a comprehensive and lasting reform which could rationalise, simplify and make fairer the current system of pension taxation whilst also raising revenue in the medium term’. But in the absence of such reform, ‘there is a case for Labour’s proposed reinstatement of the lifetime allowance and, were Labour to form the next government, it would be best advised to implement any reform swiftly’, the think tank says.
Shadow Chancellor Rachel Reeves had said that a Labour government would reintroduce the pensions lifetime allowance following the announcement of its abolition by chancellor Jeremy Hunt in his March 2023 Budget. But the Labour Party has yet to confirm its plans for pensions tax.
According to the IFS, reintroducing the charge at its previous level might raise almost £800m a year. However: ‘that would represent a missed opportunity to improve and rationalise the system of pensions taxation. That could include – among other things – a more generous annual allowance, a reduction in the cap on the amount that can be taken from a pension pot completely free of income tax and a new cap on the amount of pension wealth that can be bequeathed at death free of inheritance tax. In fact, the case for this latter set of reforms is stronger than the case for reimposing the lifetime allowance. If these latter reforms were included in a policy package, there would be a case for setting any reintroduced lifetime allowance at a higher level than previously.’
Carl Emmerson, Deputy Director of the IFS, said: ‘Given the current way in which we tax pensions there is a case for reintroducing a lifetime allowance. But that is mainly because so many other aspects of the system are overly generous to high earners who get sizeable employer contributions and accumulate big pension pots. Rather than a simple kneejerk return to the system of two years ago, a new Labour Chancellor would be well advised to implement a comprehensive and lasting reform which could rationalise, simplify and make fairer the current system of pension taxation whilst also raising revenue in the medium term. The danger is that a reintroduced lifetime allowance ends up being just another bump in the pensions tax road, and another missed opportunity to rationalise the system with a coherent package of measures.’
