Labour’s pension tax plot will create a new era of retirement inequality

Taxpayers would fund already generous pots – while their own savings are capped

The Chancellor’s decision to scrap the pensions “lifetime allowance” was a great day for British pensions. 
The pension tax, first introduced under Gordon Brown, punished pension success and never made sense. If you restrict the amount people can pay in each year, there is no need to penalise them for building a big pension fund over time.
Unfortunately, immediately after Jeremy Hunt’s announcement, Labour vowed to reintroduce this pernicious penalty, if it came to power. 
The allowance capped tax-free lifetime pensions savings at a little over £1m. It was abolished after senior NHS doctors were hit with large tax bills for working overtime, due to the complexity of how their retirement benefits are calculated. Labour said under any reinstatement, NHS workers would be protected.   
But we now hear they may exempt “public sector leaders” too. Public sector schemes are among the best in the land, with unlimited inflation protection that guarantees lifelong pensions regardless of markets or the economy. 
Indeed, NHS, teacher, civil service and other public service schemes are unfunded, so future taxpayers must foot the bill to fund them. But they, themselves, will have much worse pensions. 
Our once world-leading pension system has withered over the years, particularly since 1997’s extra tax on pension fund dividends. 
As private sector employer-backed pensions have almost disappeared, most workers nowadays rely on long-term investments to provide decent later life income. 
It would therefore be a travesty to bring back the lifetime allowance only for those who depend on the very investment returns that would be penalised. 
Why should these higher-paid public sector leaders be able to build superior penalty-free large pensions, at the expense of people much less well-off?
Of course, those who can make larger contributions are likely to have higher pensions over time, but that applies to public as well as private sector workers. 
Penalising strong investment growth undermines the very point of modern defined contribution pension pots. As long as the amount you can pay in each year is limited by an annual allowance, there should be no need to restrict the investment growth too.   
Indeed, the lifetime allowance is a damaging deterrent to pension investment and makes it almost impossible to plan properly for the future. 
People close to the lifetime limit in their forties or fifties may stop contributing to avoid future penalties, but if the markets then collapse just before retirement, they will receive far lower pensions than they were expecting. 
The Chancellor rightly wishes to encourage more UK pension fund support for much-needed high-growth domestic businesses, such as fintech, biotech, life sciences, renewable energy and other infrastructure projects. 
This can boost pension returns, growth and confidence in our financial markets, while providing better later life income and a stronger economy to retire in. 
But Labour’s disastrous proposals would make people afraid of investment success. If the aim is to reduce Exchequer costs of pensions tax reliefs, or restrict high-earners ability to build extra-large pension funds, then reducing annual contribution allowances would suffice, without bringing back the lifetime cap. 
If Labour seriously believes it is right to make tomorrow’s taxpayers fund unlimited high pensions for public sector staff, while they themselves are unable to accrue more than a specified amount, they must think again. 
They have form on damaging pensions and this would only add to their poor record. The UK pension system would become even more inequitable, unfairly rewarding those who are already better pensioned than almost everyone else and setting the country up for social division.
Baroness Altmann was pensions minister under David Cameron