Labor has been accused of exaggerating the gains arising from a budget move to scrap Chancellor Jeremy Hunt’s £1.1 million lifetime allowance on tax-free pension contributions.
Shadow Chancellor Rachel Reeves vowed to reverse Hunt’s decision to end the lifetime allowance, which she justified on the grounds that it would encourage older staff to stay in their jobs, particularly NHS doctors and consultants.
Labor said in a press release on Thursday that the abolition of the lifetime allowance “could see the richest one per cent of pensioners receiving an average net pension of £45,000 next year”.
It said “those with more than £1.4mn in the pension pot could pay up to £150,000 less in tax”.
However, experts said this example by Labor, explained in a footnote in its press release, exaggerates the tax savings available to the wealthy.
David Robbins, director of WTW, a professional services firm, calculated that the tax savings for someone with a £1.4mn pot would be “less than a third as large”. [Labour] Tell”.
He said that in calculating this, it appeared Labor had applied “the wrong tax rate change to the wrong part of the pension pot”.
Robbins said the tax saving would be in the region of £29,000 to £47,000 rather than £150,000.
Kay Ingram, a chartered financial planner, said Labor had “exaggerated the tax savings for the individual” in its press release.
“It is regrettable that the opposition has chosen to attack this proposed change, to discourage them from coming up with alternative ways to remove the unexpected tax bills and to stay in work, which the current tax regime has created ,” He said.
Labour, which said on Thursday it would set out a targeted plan to tackle its pension issues to keep doctors employed, declined to comment on the apparent error in its press release.
But it admitted a mistake on Friday, saying it was now using a different example from the Resolution Foundation, a think-tank, to suggest that someone with a £2 million pension pot could face a tax cut of around £250,000. will save.
The apparent error in Labour’s press release follows days of confusion about the finer points of complex pension tax rules, and how people may be affected by proposals set out by the government and Labour.
Chris Etherington, partner at RSM, an accounting firm, said Labor’s calculation of an estimated £150,000 in tax savings looked like it was “based on a misunderstanding of how pension tax rules work”.
He said it was difficult to see how the Resolution Foundation calculated its figures.
As well as scrapping the lifetime allowance, Hunt proposed raising the annual tax-free pension contribution limit from £40,000 to £60,000, and budget documents estimate his proposals would cost the government £1.1 billion by 2028. Will come
The Office for Budget Responsibility, the fiscal watchdog, has estimated that the proposals could lead to 15,000 people returning to work.
But Nimesh Shah, chief executive of another accounting firm, Blick Rothenberg, said Labour’s knee-jerk reaction to Hunt’s budget announcement was “not helpful” because it would significantly influence taxpayer behavior in the run-up to the next election.
“It could also mean that people are contributing significantly more to their pensions in this window so they can lock-in benefits, as Labor will need to introduce another form of fixed security,” he added. , if they follow it,” he said.
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