The pensions industry has expressed its relief following reports that Labour has dropped plans to reintroduce the lifetime allowance (LTA) if elected, as a result of industry concerns around the uncertainty for savers and the complexity involved.

Chancellor, Jeremy Hunt, previously announced plans to abolish the LTA in his 2023 Spring Budget, with the Finance Act 2024 delivering an amended pensions tax regime, effective from 6 April 2024, which replaced the LTA on most pension and lump sum benefits with two new allowances on most lump sum benefits.

However, the Labour Party had previously suggested that it would look to reinstate the pensions LTA, arguing at the time that the government's plan to abolish the allowance was the "wrong priority, at the wrong time, for the wrong people".

A number of industry organisations raised concerns over the uncertainty facing savers as a result of this, also warning that reinstating the LTA would be "far from straightforward", amid concerns that any re-introduction of the allowance would cause an "incredible amount" of disruption and confusion.

However, according to reports from the Financial Times, Shadow Chancellor, Rachel Reeves, has now dropped the proposal from Labour’s election manifesto, because it would add uncertainty for savers and be complex to reintroduce.

Head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, said this news will be greeted with a "sigh of relief" by people who can now plan ahead for their futures with more certainty.

She also argued that "any reform of the pension tax system should be done with the aim that people are properly incentivised to save for their futures without having to worry about being tripped up by complex rules".

Director of public policy at AJ Bell, Tom Selby, echoed this, arguing that Labour "deserves credit" for recognising industry concerns and dropping plans to reintroduce the limit, "a move which would have risked hitting senior public servants, including doctors, with huge tax bills, added unwelcome complexity to the pensions tax system and unfairly penalised those who enjoy strong investment growth".

"Labour’s commitment to stability should give savers confidence to plan for the future,” he added.

"This move also supports wider efforts to boost investing, including in UK companies. Any pension tax reform taken forward by the next government should focus squarely on simplification and encouraging more people to save for the long term."

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