Labour drops plan to reintroduce pension saving cap

Labour has dropped a plan to reintroduce a cap on how much people are allowed to save into their pensions before paying tax, after lobbying from senior NHS doctors.

Under the pensions lifetime allowance, pension pots over £1.07m faced an annual tax of £40,000 on average.

It was scrapped in April, but there remain unfixed issues with the legislation which affect some people.

Shadow chancellor Rachel Reeves had originally vowed to bring back the allowance, which could raise £800m a year, but Labour has now dropped it ahead of the planned released of its manifesto on Thursday.

A Labour adviser said: “The Conservatives have botched their policy of abolishing the lifetime allowance, with thousands of people approaching retirement being left in limbo because of errors in legislation.”

Labour said there was now an “extraordinary situation where the current government advised some savers to delay retirement until after the election” and that it would “sort out this mess” if elected.

According to the most recent government data from tax returns, there were 11,660 lifetime allowance charges for 2021-22, a figure that has consistently increased over the last decade.

The Office for Budget Responsibility calculated in 2023 that scrapping the charge would amount to a tax cut of about £800m a year between 2025 and 2028.

Ms Reeves originally said the removal of the charge was the “wrong priority, at the wrong time, for the wrong people”, but added there would be exceptions for senior consultants.

Labour now plans to go ahead with the tax cut after complaints from senior NHS staff and unions.

The party criticised the government for mistakes in the bill it introduced removing the allowance.

Two days before the law abolishing the allowance came into affect, HMRC said that some people should consider delaying making changes to their pension because of loopholes in the legislation.

It said there were plans to fix the legislation, but the election means Parliament has been dissolved. As a result, the bill cannot be amended to fix the problems until after the election.

The Conservative Party has been approached for comment.