“As it would be challenging for a new government to implement this policy by April 2025, emergency legislation might be needed to avoid a haemorrhaging of tax revenue as people rush to draw their pensions,” Webb said.
“A new government would also need to be very clear to senior doctors that they need not be concerned that by carrying on working they risk incurring large tax charges.
“Without this, the new government’s plans to improve the NHS could be undermined by an early exodus of senior doctors.”
Those with higher incomes and unused annual allowances from previous years might also choose to ‘pile’ money into their DC savings and then crystallise them before the LTA was reintroduced (or before a general election).
Webb added: “Although this issue has been talked about as one which affects only ‘the top 1 per cent’, in practice hundreds of thousands of people who are within a decade of retirement will be taking a very close interest in what any prospective new government says about its plans for the LTA.”
The paper also said that those who had already built up large DC pots might bring forward the point at which they crystallise them, to avoid potential LTA charges.
This would reduce the amount of tax revenue a future government could expect to gain by bringing back the LTA.
The firm explained that implementation in time for the first financial year after a general election - starting in April 2025 - might be exceptionally difficult, and this could increase the need for interim legislation to avoid large scale post-election pension withdrawals purely designed to avoid LTA charges.
“A new government might also find that unless it had made its plans very clear before the election, it would need to deal with the consequences of an exodus of senior NHS doctors,” it added.
HMRC and the Treasury have been approached for comment.
sonia.rach@ft.com
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