Labour scraps plans to reintroduce pensions lifetime allowance

Labour has abandoned its plans to reintroduce the pensions lifetime allowance, with the BMA saying this will help ‘help retain doctors in the NHS’.

It was abolished last year, as part of chancellor Jeremy Hunt’s plan to ‘help people extend their working lives’.

The Labour Party shortly after said it would reverse the move if they were voted into Government, because it amounted to a ‘Tory tax cut for the rich’ and it was ‘the wrong priority, at the wrong time, for the wrong people’. 

But shadow chancellor Rachel Reeves has excluded the proposal from the party’s election manifesto, expected to be published on Thursday.

As revealed by the Financial Times, the proposal was dropped because it would add uncertainty for savers and be complex to reintroduce.

When the lifetime allowance was abolished, accountants said that this meant the lifetime value of pensions could grow without additional tax charges, resulting in more GPs and consultants considering continued NHS service rather than taking early retirement.

BMA pensions committee chair Dr Vishal Sharma said he was ‘really pleased’ that Labour listened to the warnings of the BMA about reintroducing it.

In a post on X, he said that this will give ‘much needed certainty’ to doctors and ‘retain them in the NHS’ and added that Labour must also look at the tapered annual allowance.

The annual allowance was increased from £40,000 to £60,000 as part of last year’s budget, in order to ‘incentivise highly-skilled workers to remain in the labour market’.

But at the time, Dr Sharma said that some doctors would still be adversely impacted by the annual allowance and in particular by the tapered annual allowance ‘which hasn’t been meaningfully modified in these reforms’.

A minority of doctors still need to navigate the complexity of the annual allowance, an allowance which the BMA believes is ‘completely unsuited’ to defined benefits schemes such as the NHS, meaning that some doctors will still need to think carefully before taking on additional shifts or doing overtime.

Also on X, BMA pensions committee deputy chair Dr Tony Goldstone said: ‘We at the BMA pensions committee have lobbied both the shadow treasury team and shadow health teams over the last 14 months around pension taxation – thank you for listening to the serious concerns of the BMA and our members.’

He also said that the BMA has been ‘clear’ with Labour and the Conservatives that the annual allowance ‘must be indexed’, as it can ‘operate in a perverse way to disincentivise extra work or overtime’.

Alec Collie, head of medical at Wesleyan, the specialist financial mutual for doctors, said that Labour scrapping the plans means doctors can continue to save and plan for retirement with ‘greater confidence’ that the current system will not be upended in a few months’ time.

He added: ‘Fundamentally, re-introducing the LTA would have risked re-introducing the pension tax issues for some of our most senior, experienced clinicians that were effectively punishing doctors for just doing their job.

‘And proposals to try and get around this by adding new LTA rules to treat public and private sector pensions differently would have also had undesirable outcomes – creating an unfair wedge between taxpayers and making an already complex system even more complex.’