With an election looming, Labour leader Kier Starmer and shadow chancellor Rachel Reeves are planning to wreak yet more havoc on private sector pensions. At the same time, they will make sure their mates in the public sector retain benefits the rest of us can only dream of.
In March last year, Chancellor Jeremy Hunt abolished the pensions lifetime allowance (LTA), which caps the total that workers can build up in retirement savings at £1,073,100.
Under the LTA, anybody who exceeded the cap paid a punitive “horror” tax that swallows a staggering 55 percent of any surplus. Almost two million were at risk.
Axing the LTA was long overdue, because it was complex and confusing, and nobody could work out if they were likely to pay, which made pension planning impossible.
Savers are already limited to how much they can pay into a pension each year, under the annual allowance. That should be enough.
Once people have put their money into a pension, the government should let them get on with it, rather than set an arbitrary cap on how much pension they can build up.
Most do not come anywhere near the LTA. However, NHS doctors do, forcing many to cut their hours or quit altogether.
Top doctors, police officers, senior teachers, military top brass and successful entrepreneurs also lost a big incentive to carry on working once they neared the cap.
Immediately after Hunt said he was abolishing the LTA, Starmer and Reeves made it clear they would reinstate it again.
They claimed Hunt was helping out his rich mates. Which is ironic, as we’ll see in a moment.
Labour has said NHS doctors will be exempt from the reinstated LTA, to stop them retiring. But it looks like it isn’t going to stop there.
It has also said that it will reinstate the LTA “in a way that ensures we retain public sector leaders”.
So far, it has refused to expand on that vague statement, while furiously denying that it is creating “a carve out” for the public sector.
This is a sensitive topic for Labour, because Starmer has previously carved out a very cushy pensions deal for himself.
He is estimated to have pension pots worth £1m, all built up in the public sector, from his time as Director of Public Prosecutions and his MP’s pension.
None of it will be subject to the LTA.
Last year, The Daily Telegraph revealed he was the sole member of a “tax-unregistered” pension scheme during his five-year stint at the DPP, with no lifetime cap on his pot.
Starmer-appointed senior civil service adviser Sue Gray boasts a £1.9million pension. Reeves’ senior civil servant husband Nick Joicey is just shy of the million mark.
So it looks a bit hypocritical to revive the LTA while making sure their own pensions are immune.
It will allow key public sector workers to build as much pension as they like while private sector workers who do the same get an unwelcome visit from HMRC.
READ MORE: That hated 55% pensions tax is coming back – and this time millions…
This isn’t the first time Labour has attacked private pensions while exempting the public sector. Which brings us back to Gordon Brown.
Before Brown’s 1997 tax raid, the UK pensions system was one of the best in the world. Millions of private sector workers could look forward to a comfortable retirement on company-funded defined benefit “final salary” pensions.
Not anymore.
All have been closed to new members for years, as Brown’s £100billion tax grab made them unaffordable.
The only place final salary pensions survive today is – you guessed it – the public sector.
Last year, we learned that the public sector pension bill is bigger than the entire UK economy, hitting a whopping £2.3trillion in the 2020/21 tax year.
At the time, the UK economy was worth £2.1trillion.
And guess who pays for it? Since there is no pot of savings to fund public sector pensions, today’s workforce will foot the bill through their taxes.
The vast majority are in the private sector. They are paying for a benefit that they no longer get themselves.
Labour plans to keep it that way. While clamping down on private sector pensions once again.
