Labour decided to abandon its plan to reintroduce a cap on pension savings, marking a significant policy shift from earlier statements. Initially, the party had committed to bringing back the pensions lifetime allowance, which imposed a tax on pension pots exceeding £1.07 million. The cap was abolished in April, but Shadow Chancellor Rachel Reeves had strongly advocated for its reinstatement, arguing it could generate £800 million annually. However, just ahead of its manifesto release, Labour reversed this position, citing concerns about the complexity and uncertainty the cap would create for savers.

The lifetime allowance (LTA) previously limited the amount individuals could save in their pensions tax-free, with excess amounts subject to an average annual tax of £40,000. Chancellor Jeremy Hunt abolished it, aiming to discourage early retirement among older workers, particularly NHS consultants. At that time, Labour criticized the decision, with Reeves calling it "the wrong priority, at the wrong time, for the wrong people." She had promised that a Labour government would reintroduce the cap while making exceptions for NHS doctors and other public servants.

However, the recent decision to not pursue the cap reintroduction indicates a departure from this stance. Labour's new position suggests that the cap's reintroduction would introduce unnecessary complexity and uncertainty for savers, despite the previous assertion that scrapping it primarily benefited wealthy individuals.

SOURCES

1st Video: Labour promises to reverse Chancellor's plan to abolish lifetime allowance cap on tax-free pensions - https://news.sky.com/video/labour-promises-to-reverse-chancellors-plan-to-abolish-lifetime-allowance-cap-on-tax-free-pensions-12835471

2nd Video: Labour drops plan to reintroduce pension saving cap - https://www.bbc.com/news/articles/cd11n2krmm4o

3. Labour U-turns on pension lifetime allowance plans - https://www.investorschronicle.co.uk/news/2024/06/10/labour-u-turns-on-pension-lifetime-allowance-plans/