— Josephine Cumbo (@JosephineCumbo) April 23, 2023
There are many things wrong with our pensions system, but removing a cap on people’s pensions that meant that anyone aspiring to a pension income in retirement of more than £50,000 paid tax at 55% is not going to make things better, it will make things worse.
A policy that reinstates the Lifetime Allowance will be worse for pensions, for the country and worse for Labour.
Aspiring to have more than £1m in pension rights should not be considered anti-social and be penalized. It should be celebrated. Those who have saved hard or worked in well pensioned jobs were relieved by the budget’s announcement that the Lifetime Allowance would be scrapped. Many more, who are aspiring to have a comfortable rather than a frugal retirement, saw the removal of the LTA as an incentive to save more in funds that we are told, can do social good.
Labour doesn’t understand tax
This is my conclusion – following the statements made by Jonathan Ashworth in the Telegraph. The Treasury is no fan of the LTA , not because it is imprudent with the nation’s finances but because it is a crap tax that – with the help of expensive tax advisers – most rich people can avoid by protecting existing accrual and saving not into pensions but into other less socially useful alternatives.
And as the vast majority of people who vote, aspire to better than being lower-rate tax payers in their later age, the LTA is not just a crap tax to collect, it’s a tax that makes the tax-man a bogey-man.
A crap tax, expensive to administer, delivering little revenue and serving no good purpose is a tax that should be abolished. Instead of understanding this, Rachel Reeves stood up within hours of the Chancellor’s budget announcement and said that Labour would repeal the Finance Act’s LTA clauses and reinstate the tax. This was rightly seen as “knee-jerk” and I’d thought – like Rosemary Connor at last week’s Pension PlayPen, that Labour would quietly reframe its position and announce – once in power – that it would review pension taxation properly.
This does not seem to be the case. As someone previously inclined to vote Labour at the next election, this populist but stupid approach to the LTA makes me doubt Labour’s capacity to manage not just pensions, but the Country.
What Labour can and should do, is understand what is really going wrong with pensions. That is that we are throttling the golden goose of DB pension schemes, stealing the eggs that could turn DC into a good pension system and instead focusing on “beggar my well pensioned neighbor”.
The well pensioned are indeed privileged, but they have the privilege of setting company pension contributions and ensuring savers get value for money. Excluding them from future pension accrual is likely to disengage them from the work we need them to do for others.
With friends like me, your making a lot of enemies
I am afraid to say that Jonathan Reynolds , Matt Rodda and his shadow DWP team know next to nothing about the pension value proposition. They are obsessed with the wrong things, with charge caps and tax-caps and bashing “Kwarmageddon”.
Instead of making cheap political gestures, Ashworth, Rodda and team should start talking to people in the pensions industry who have spent a lifetime making the mistakes they are about to make for the first time.
They are in thrall to what Starmer and Reeve are saying and they Starmer and Reeve are not making pension sense – other than in a short-term populist way. Instead of toeing the party line, the DWP team should be pushing back.
All parties are a party to pensions policy
The LTA and other curbs on high pensions and high pension contributions were introduced in 2006 under a Labour Government but so was the Pensions Act 2004 that effectively ushered in leveraged LDI and the closure of DB schemes. The charge cap was introduced by a coalition that did not include Labour and is now being relaxed to improve the value we get for our money. The triple lock was introduced in 2010 and the reforms of the state pension in 2016 came about because SERPS died by a thousand cuts, many of which under a Labour administration.
Auto-enrolment was conceived by Labour but delivered by the coalition, CDC was a joint venture between a left-wing union and a for profit UK corporate. Labour can share in much of what is going right as well as share the blame for much of what has gone wrong. But when it decides to take on the Treasury over pension taxation it is undoing much of the good done by Jack Dromey and other shadow pension ministers including Stephen Timms – the Chair of the Work and Pensions Committee and Frank Field – his predecessor. Other pension experts such as John Denham are still in the party.
There are many good people in the Labour party (though sadly Jack Dromey is no longer with us). But these good people do not seem to be informing on party pension policy.
Labour has invested too little time thinking about a strategy for pensions and this half-baked opposition to the LTA is evidence that of the absence of policy initiatives they have produced since 2010. They did not warn – as they were advised to do by Keating, Clacher and others -of the impending blow up from LDI .
They are still not talking to those who support them and who would like to help them genuinely understand the problems in corporate DB and workplace pensions.
It is time that Labour started properly engaging with the issues of pension funding, converting pots to pensions and allowing pensions to help in the financing of growth in the economy.
If Labour needs a tax-position it should be one of constructive reform not destructive restitution of a tax that was unloved and uncollectable.