Labour has learned nothing from its disastrous record of pensions meddling

 The party's hatred of wealth has made it hellbent on complicating retirement planning

Source - Daily Telegraph 16/03/23

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There’s a growing inequality in Britain, a widening gulf between those who have to save prudently for their own retirement, and those who can sit back and rely on the taxpayer.

This retirement wealth divide will next month widen even further when public sector pensioners pick up a double-digit pay rise while those forced to rely on investment growth continue to see their pots get battered by economic uncertainty.

The beginning of this new pension injustice can be traced back to Labour chancellor Gordon Brown’s decision to strip dividend tax credits from pension schemes, which helped trigger the demise of employer-guaranteed "final salary" retirement deals in the private sector.

Jeremy Hunt’s radical shakeup of pension allowances in yesterday's Budget went someway to address that by scrapping the limit on tax-free savings – the pernicious lifetime allowance Labour created in 2006.

The cap on total pension savings has always been much more generous to those with gold-plated defined benefit salary-linked pensions due to the way they are valued.

Yet, it seems, Labour cannot resist meddling with our pensions, and has already promised to reinstate the lifetime allowance if elected.

Mr Hunt said he was scrapping the lifetime allowance to stop senior doctors from retiring early from the NHS to avoid sudden and hefty tax bills on their pensions. 

In truth, it was simply no longer justifiable. 

Savers already face annual limits on how much they can pay into their pensions tax-free, the lifetime limit was unnecessary red tape that only served to punish investment performance. 

The cap had also shrunk in real terms and should now be as high as at least £2.5m.

The logical thing to do was to scrap it, but logic does not apply to Labour. It doesn’t matter if this measure could save the NHS, what matters to Labour is that it is perceived to be a tax break for the wealthy only.

Labour says the shakeup would "result in the top one per cent of pension savers getting a massive tax break for their retirement". 

Shadow chancellor Rachel Reeves says scrapping the lifetime allowance would widen “the cost of living chasm”.

But the value of Mr Hunt’s reform is not really about who it benefits. It is simply a long overdue removal of red tape that gives all of us more freedom over our pensions.

Retirement planning has been over complicated and made nigh-on impossible by the lifetime limit, which has changed seven times in recent years. 

Politicians seem clueless to the fact that the pension system has long been crying out for simplicity and clarity.

Britain is facing a retirement crisis because the state pension is unaffordable (the pension age is likely to rise soon as a result) and workers are not putting enough into their pension pots. 

Labour’s short-sighted meddling only takes away the certainty savers need to plan effectively, and ultimately infringes on their financial liberties.

How, and at what level, would Labour bring back the lifetime allowance I wonder? 

Had Mr Hunt, for instance, merely increased the lifetime pension allowance to £1.8m, the new limit would have allowed a senior doctor to amass a pension paying £90,000 a year without losing any tax relief. Whereas a private sector worker with a "defined contribution" fund could only buy an annuity paying around £63,000 a year for £1.8m.

Labour’s pledge to bring back the allowance, potentially just months after it is due to be scrapped, will only encourage a mass exodus of senior doctors to quit work. 

They are painfully aware that come the next election they may be facing colossal tax bills once again.

Labour’s blinkered hatred of wealth has made the party hellbent on taking away our pension freedoms. A great retirement disaster will be waiting for them if they are victorious in the next general election.