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The Labor Party has insisted that Sir Keir Starmer made an “outdated mistake” when he said he would scrap the pension lump sum if he wins next week’s general election, a gaffe that will be exploited by the Conservatives.
Asked on BBC Radio 5 Live whether Labor would remove the option for people to withdraw a one-off payment of 25 per cent tax-free from their pensions, Starmer incorrectly replied: “It will be gone in a few years.” He added: “We’re not going to renew it.”
Savers can generally draw down up to 25 per cent of the amount accumulated in any pension as a tax-free lump sum. New rules introduced in April this year capped this lump sum allowance at £268,275.
A spokesman for Starmer said: “It was an old-school mistake.” Asked whether the Labour leader had accidentally revealed an undisclosed tax plan, the spokesman insisted: “Absolutely not.”
The Conservatives will seize on his comments as evidence that Labour has a secret plan to raise taxes, including on pensioners, a key segment of voters.
Labour quickly tried to calm the issue. “The ability to withdraw 25 per cent of your pension as a tax-free lump sum is a permanent feature of the tax system and Labour has no plans to change this,” a spokesman said.
Asked if Labor was making a strong promise not to change the current system, rather than simply having “no plans”, a spokesperson said: “It’s a firm commitment.”
The spokesman added: “Keir was referring to temporary tax breaks in the scheme which are due to expire and which public finances mean will not continue.” Labour gave the example of the temporary increase in the stamp duty threshold for first-time buyers from £300,000 to £425,000.
The Labour Party has explicitly ruled out in its manifesto increases in income tax, national insurance, VAT and corporation tax rates, which together account for around 75 per cent of all tax revenues.
This has led to speculation about what taxes the party might raise if it wins the election and needs to raise more money.
Labour says it has “no plans” to raise taxes beyond the limited tax-raising measures set out in its manifesto, such as higher taxes on private schools, private equity firms, nondoms and oil companies.
The party’s failure to categorically rule out other tax changes (for example, capital gains tax or pension tax cuts) has led Conservative leader Rishi Sunak to warn that taxes will rise under the government. Labor.
“Mark my words: Labor will raise your taxes – it’s in their DNA,” Sunak said in a BBC television debate on Wednesday.
Sir Steve Webb, a former pensions minister and partner at LCP, an actuarial firm, said the government was unlikely to scrap the lump sum allowance for pensions.
“Politically, abolishing tax-free cash is unimaginable,” he said.
“Many millions of workers have saved into a pension fund with the expectation of receiving a nice tax-free lump sum at the end, and scrapping it would be political suicide.”
However, he said it was “possible” that a future government could reduce the generosity of the tax-free global allowance.
“For example, the current lifetime limit of just over £268,000 could be reduced to £200,000 and still be at a level that would have no effect on the vast majority of pension savers, and with built-in protections for those already above the limit.”
Tom McPhail, director of public affairs at Lang Cat, a pensions consultancy, said a lump sum pension cut “would be fairly easy to do” at the start of Labour’s term, but the challenge would be how to do it equitably.
