It’s a 55% levy on people who’ve saved too much into their pension pots, through decades of hard work and careful planning.
It punishes those who’ve done the right thing by taking personal responsibility for their retirement.
The tax is also a mess. It’s so “heinous” and “horrifically complex” that even financial advisers struggle to explain it, according to Tom Selby, director of public policy at AJ Bell. You can be under the limit one year and over the next.
And if you unwittingly cross the line at any point, you’re clobbered by HMRC.
This isn’t a fair or transparent way to raise revenue. If Labour wants to target wealthier savers, there are simpler and more honest ways to do it.
But Rayner doesn’t care about that. She just wants to grab some more tax.
And in an ironic twist, the only person standing in her way is Chancellor Rachel Reeves. Who has form herself when it comes to hiking taxes.
The levy in question is the pensions lifetime allowance (LTA). It caps the total value of pension pots people can build across workplace and personal schemes.
Crucially, it’s not based on what people contribute, but on how well their investments perform.
So if you save diligently for decades and make sensible investment decisions, you’re hit with a tax for doing too well.
NHS doctors are particularly hard hit. Thousands have taken early retirement as a result, hampering efforts to cut waiting lists.
Rayner is on the warpath. She is said to be furious at Reeves’s reluctance to raise taxes instead of cutting public spending.
Rayner has privately demanded that Reeves slap higher taxes on pensioners, starting with the reinstatement of the lifetime allowance (although she doesn’t stop there).
The LTA was only scrapped by former Tory Chancellor Jeremy Hunt two years ago, after intense pressure from financial experts and pension campaigners.
But Labour immediately denounced it as a tax break for the Tories’ rich mates, and pledged to bring it back if they won power.
Reeves also backed restoring the LTA, but Labour quietly dropped it from the General Election manifesto.
So Rayner may be pushing at an open door.
On paper, this may look like an easy win. The lifetime allowance previously only hit those with pension pots worth more than £1,073,100.
So the majority of voters may not care. Many will applaud it, seeing it as a tax on wealth. That would be a mistake.
This tax is not just punitive – it’s confusing and costly to monitor.
If Labour really wants to limit tax breaks for the wealthy, it should cap annual contributions, not penalise people years later because their investments did well.
And while today’s LTA threshold looks high, it’s a moving target.
Originally set at £1.8million, it was repeatedly cut and frozen.
If introduced, you can be sure it will remain frozen for years or even decades, catching more of us every year.
Worse, it won’t actually raise more tax. Over time, many higher earners will retire once they’re close to breaching their LTA, and HMRC will lose income tax and national insurance receipts as a result.
Plus the NHS will lose hugely experienced doctors.
Today, the LTA might worry only the better-off. But tomorrow, it could hit many more of us. Savers will learn to hate it all over again, and Angela Rayner will be thrilled.
