Will I lose my tax free cash?
In a bit of a radio mishap this week, opposition leader Keir Starmer found himself in a a pickle when he hinted that Labour might be getting rid of the beloved 25% tax-free lump sum you can take from your pension savings.
Thankfully, it turns out that Starmer got his wires crossed, making what he called an “old-fashioned mistake” that left many scratching their heads and wondering if they’d have to rethink their retirement plans (not to mention the receipt of quite a few emails to me from my clients this week which has thus generated the reason for this newsletter on a Saturday – cheers Keirs !!)
Anyhow, while on BBC Radio 5 Live, Starmer was given a couple of tricky questions from listeners. The first question was about Labour’s stance on not raising taxes for working people, and the second was whether they’d be keeping the tax-free lump sum option. Clearly caught off guard, Starmer blurted out, “Well, it runs out in a number of years and we are not going to renew it.” He then went on to talk about how Labour’s plans need to be fully costed and funded, leaving many listeners feeling like they’d just sat through a very confusing episode of ‘Yes, Minister.’ All the while, leaving the 25% tax-free lump sum question in limbo, like a forgotten umbrella at a pub.
To clear up the confusion, Labour quickly issued a statement. They reassured everyone that the ability to withdraw 25% of your pension as a tax-free lump sum is here to stay. According to the Financial Times, a Labour spokesperson was quick to squash any rumours that Starmer had let slip a secret tax plan, making it clear that the tax-free lump sum isn’t going anywhere.
This policy, which is pretty much a sacred cow in the pension world, is enshrined in law and encourages folks to save for their golden years. Most people seem to agree that Starmer was just having a bit of a brain freeze and, in the end, the only thing under threat was Starmer’s reputation, not your retirement fund.
So, at the moment, you can sleep easy knowing your 25% tax-free lump sum is as safe as houses – or at least safer than any politician’s promise these days.
What about The Lifetime Allowance?
On a second U-turn on pensions, Mr Stammerer (sorry Starmer) and the shadow Chancellor, Rachel Reeves, has now also revealed that they do not plan to reinstate the lifetime allowance, despite stating that it would be one of the first things he would do if he got in power. Again, this is a question I’ve been dealing with a few times in client meetings.
Speaking in March 2023, Reeves said: ‘Labour will reverse the changes to tax-free pension allowances. It is the wrong priority, at the wrong time, for the wrong people. Instead, we would create a targeted scheme to encourage doctors to work overtime and not to retire early.’ The latest statement from the Labour party says that ‘the reintroduction of the LTA will be absent from the party’s election manifesto, reportedly because the proposal ‘would add uncertainty for savers and be complex to reintroduce’.
No kidding Sherlock!! How it could ever have been re-introduced fairly after many people have restarted contributions over the last 2 years would be harder than untangling last years’ Christmas lights.
So, I hope this helps clear up the confusion – well until the next confusing statement occurs!!!
Have a great weekend everyone
Brian
