What the general election means for your retirement plans (2015)

General election time often creates both excitement and nervousness and for much the same reason – the prospect of change.  With the battle heating up, the economy in general and pension reforms in particular look like becoming key battlegrounds in the approach to May 7th.  With that in mind, let’s take a look at what the three main parties have indicated is in store in terms of retirement planning in general and pensions in particular.

The Liberal Democrats

At the moment, the Liberal Democrats’ proposals are still in “pre-manifesto”-stage, i.e. they are still to be made final.  Current indications are that they plan to adopt a tax-and-spending economic strategy.  Hence pension savers can expect there to be new levies on their pension pots.  There will also be a reduction in the amount people can save tax-free in these pension pots.  At current time, the Liberal Democrats are talking about capping them at £1M, which would be a reduction of 20% on the current figure. 

The Labour Party 

The Labour Party has also yet to release its manifesto; however it has shown itself open to reducing tax relief on pension contributions made by higher earners.  Specifically it has mentioned targeting those earning over £150K pa and slashing the relief on pension contributions to 20%.  Labour believes that this would raise over £1bn, which they say they would then spend on job creation.  This is in addition to reintroducing the 50p rate of income tax to incomes of over £150K pa Labour have indicated that they are in favour of a mansion tax, which they say they would use to fund the NHS.  As a final retirement-related point, Labour have also proposed abolishing the Winter Fuel Payment for the most affluent pensioners.

The Conservative Party

Again, the Conservatives have yet to release their manifesto.  They have, however, stated that they are committed to “dignity and security” in later years.  They also have a track record in government, which could give some clues to their outlook.  First of all it was the Conservatives who introduced the “Triple Lock” pension policy, i.e. the guarantee that the state pension would rise in line with inflation, wages or 2.5%, whichever is the highest.  While Labour and the Liberal Democrats are both in favour of this “in principle”, neither has, as yet, made a commitment to keeping the Triple Lock, whereas the Conservatives have guaranteed to keep it until at least the 2020 election. 

Recently the Conservatives have removed the obligation to use a pension fund to buy an annuity, with effect from 6th April 2015.  This means that pensioners can choose between the freedom of keeping control of their pension pot versus the security of an annuity.  This has been the subject of some controversy; in that the elderly will splurge their earnings (possibly for the best of reasons) and thereby make themselves dependent upon state support in their latter years, particularly if they need long-term care.  Given that the logic behind offering tax relief on pension contributions was essentially to ensure that people were able to save enough to have an income in retirement, it is an open question as to how Labour or the Liberal Democrats would respond to this if they were to form a government.  They could choose to let sleeping dogs lie, they could choose to bring back the obligation to buy an annuity (albeit possibly at a later age) or they could use this change to justify changes to tax relief on pension contributions.

The Conservatives have announced other changes, which essentially make it easier to transfer pension pots between generations upon the death of the saver.  Again, it is unclear whether or not Labour or the Liberal Democrats would continue to support this.

Website links to articles –

Labour

Liberal Democrats

Conservatives

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