- Monevator - https://monevator.com -

Weekend reading: The LTA is really dead

What caught my eye this week.

The best news this week from the election dog and pony show is that Labour will not reinstate the recently-scrapped [1] Lifetime Allowance for Pensions (LTA).

According to the BBC [2]:

Labour has dropped a plan to reintroduce a cap on how much people are allowed to save into their pensions before paying tax.

Under the pensions lifetime allowance, pension pots over £1.07m faced an annual tax of £40,000 on average.

The cap was scrapped in April but Shadow chancellor Rachel Reeves had vowed to bring it back, saying it could raise £800m a year.

However, her party has now reversed the decision ahead of the release of its manifesto on Thursday, reportedly because the cap would add uncertainty for savers and be complex to reintroduce.

Of course the BBC momentarily gets the LTA wrong – it’s not a cap on savings made, but rather on the total size of your pot before additional taxation kicks in – but that’s all in the rich tradition of confusion about this cursed legislation.

A lifetime of muddle

When Chancellor Jeremy Hunt first announced he’d abolish the LTA from April 2024, Reeves called it: “the wrong priority, at the wrong time, for the wrong people”.

But the LTA itself was a cumbersome shape-shifting bundle of contradictions, which surely did the pension regime more harm than anything it sort to redress.

Even in death it’s a pain in the arse. Last month the FT reported [3] thousands of investors with large pension pots were in limbo due to sloppy legislation:

Though the Conservatives scrapped the lifetime allowance in April, errors in the legislation affected people who relied on the enhanced protection arrangements giving them the right to take out more than £375,000 in tax free lump sums.

In April, HMRC advised those savers to consider delaying their retirement plans until the rules were corrected.

Fortunately Labour now says it won’t add to this confusion.

A welcome dose of common sense which we could do with by the truckload after the fantasy politics of the past eight years.

Seven-figure sticker shock

Indeed, it’d be nice to think Labour’s change of heart marks a new era of pension stability.

But I wouldn’t bet the farm.

Many Labour supporters will still take umbrage at the seven-figure pension pots being ‘favoured’ by the scrapping of the LTA. They won’t think too hard about what size of pots would be required to deliver some of the public sector’s defined benefit pensions either.

So something may yet be done in the quest for ‘fairness’.

In reality, pension income is taxed. Those enjoying a very large pension [4] income – whether from the private sector or the state – will be paying higher rates of tax anyway.

Possibly enough to neuter much of the tax deferral benefit of pensions.

Death is not the end

Where I do find the pension regime too generous is in pensions’ transformation into a vehicle for bypassing inheritance taxes.

Those who die before they reach 75 can pass on a pension free of income tax for beneficiaries. The latter can be heirs who did nothing to earn that money. And here I deploy my usual argument that I’d rather tax them than working people.

With all parties promising us wonderful things funded on the back of ‘closing tax loopholes’ – loopholes apparently left wide open by a cash-strapped State for many years, but there you go – maybe that’s where Labour will look instead?

For now though, the end of uncertainty about the end of the LTA is good news – if a mouthful – and good politics.

Have a great weekend!

From Monevator

Is it time to ditch index-linked bond funds? – Monevator [5]

You don’t have to go nuclear on the idea of working for a living – Monevator [6]

From the archive-ator: How to construct your own asset allocation – Monevator [7]

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

LSE to boost retail offer with PrimaryBid deal – Sky [8]

UK mortgage arrears hit an eight-year high – FT Advisor [9]

Wales has the worst rate of economic activity – BBC [10]

London house building craters, UK pipeline lowest since records began – CityAM [11]

Thailand is seeking digital nomads – Sky [12]

Post-Brexit ‘mess’ as Italian driver’s lorry held for 55 hours at UK border post – Guardian [13]

[14]

Britain’s economic growth has been flattered by a booming population [PDF]Resolution Foundation [15]

Election selection mini-special

Money aspects of the manifestos – Labour [16], Tory [17], Lib Dem [18], Others [19]

There’s a huge Brexit-shaped hole in this election – Guardian [20]

How the Tories learnt to love taxing the rich – This Is Money [21]

Lib Dems pledge to rejoin EU’s single market in manifesto ‘to save the NHS’ – Sky [22]

SNP’s Stephen Flynn attacks Labour’s North Sea energy plans – BBC [23]

Even Surrey’s middle classes are angry with the Tories – Guardian [24]

Do the parties’ spending promises stack up? – CityAM [25]

Products and services

Get cheap tickets by filling empty seats at shows – Be Clever With You Cash [26]

Co-operative Bank launches a new £150 switch deal – Which [27]

Sign-up to Trading 212 via our affiliate link [28] to claim your free share and cashback. T&Cs apply – Trading 212 [28]

Is a five-year fixed mortgage now the best option? – This Is Money [29]

185,000+ savers penalised when accessing Lifetime ISA access – This Is Money [30]

Open an account with InvestEngine via our link [31] and get up to £50 when you invest at least £100. T&Cs apply. Capital at risk – InvestEngine [31]

How to switch bank accounts again and again – Be Clever With Your Cash [32]

PrettyLittleThings faces backlash after scrapping free returns – BBC [33]

Where the average house price buys the most square feet – This Is Money [34]

Homes for sale for cyclists, in pictures – Guardian [35]

Comment and opinion

Wealth and money are two different things – Darius Foroux [36]

Does it make more sense to rent or buy in the UK? [Search result]FT [37]

Young women are telling each other to ‘date rich’. How terrifyingly retro – Guardian [38]

The cost of living: then and now – Getting Minted [39]

Why you’re probably not missing out on hedge funds – Humble Dollar [40]

Champagne wishes and caviar dreams – Josh Brown [41]

Father time is undefeated – Abnormal Returns [42]

Horseshoes and hand grenades – Fortunes & Frictions [43]

What is enough? [Podcast] – The Long Game via Apple [44]

TIPS and your portfolio [US but interesting]Morningstar [45]

US market concentration mini-special

[46]

Top 10 companies in S&P 500 now make up a record-high 35% of index – Apollo [47]

More: how worrisome is US stock market concentration? – Cullen Roche [48]

Tech -> Big tech -> Huge tech – Sherwood [49]

200 years of market concentration – Global Financial Data [50]

Naughty corner: active antics

Are Diageo shares a buy after their 35% decline? – UK Dividend Stocks [51]

Private equity is being overwhelmed by too many rich people – Semafor [52]

The man whose podcast helped him start a $100m hedge fund – efinancialcareers [53]

How often is too often? – Investment Talk [54]

Kindle book bargains

A Man for All Markets by Edward O. Thorpe – £0.99 on Kindle [55]

Doughnut Economics by Kate Raworth – £0.99 on Kindle [56]

Taxtopia by The Rebel Accountant – £0.99 on Kindle [57]

The $100 Startup by Chris Guillebeau – £0.99 on Kindle [58]

Environmental factors

The unsustainable hype around ESG [Search result, bait-and-switch headline]FT [59]

In ever-hotter US cities, air-con is no longer enough – Guardian [60]

A ‘halo effect’ drives demand for sustainable and impact investments – Alpha Architect [61]

What is the opposite of oil drilling? – The New Yorker [62]

How parakeets escaped and made Britain their home – Guardian [63]

Robot overlord roundup

Music just changed forever – Persuasion [64]

Apple’s AI moment arrives… – Platformer [65]

…with its artificial approach to ‘Apple Intelligence’ – SpyGlass [66]

Situational Awareness… [PDF, on imminent AGI]Leopold Aschenbrenner [67]

…and a rebuttal of sorts [Video] – Sabine Hossenfelder via YouTube [68]

Off our beat

The big British bamboo crisis – Guardian [69]

40 years on: The Battle of Orgreave remembered – BBC [70]

A month without a smartphone – Collab Fund [71]

‘I used to run a popular newsletter. Then things started getting weird’ – Slate [72]

Russian propagandists’ hopes for America – Timothy Snyder [73]

If you don’t see these movies now, you never will – Slate [74]

Do who you are – Humble Dollar [75]

China is losing the chip war – The Atlantic via MSN [76]

Nobody knows what’s going on – Raptitude [77]

Tributes to Michael Mosley: 1957-2024 – BBC [78]

And finally…

“Things that have never happened before happen all the time.”
– Morgan Housel, The Psychology of Money [79]

Like these links? Subscribe [80] to get them every Friday. Note this article includes affiliate links, such as from Amazon [81] and Interactive Investor [82].