As the UK heads into an election year, major parties are set to unveil key policies over the coming months, including in the Chancellor’s Budget on March 6th.
While the nation awaits further hints at what’s to come ahead of manifesto pledges, PensionBee, a leading online pension provider, outlines how political winds could shape the pension landscape in 2024 and its impact on consumers.
The Lifetime Allowance
The Conservatives boldly abolished the Lifetime Allowance with effect from April 2024. This move aimed to encourage high-earning older workers to stay in work amid concern about the number of over 50s leaving the workforce. However, Labour objected to it and has pledged to reinstate the limit if elected.
The State Pension and the Triple Lock
The Triple Lock continues to face scrutiny and question marks hang over whether a future Government will have to make changes to this mechanism for State Pension rises, in the name of keeping the cost burden down. The Conservatives have maintained the guarantee in the short term and Labour has also so far supported maintaining the Triple Lock.
Defined Contribution pensions are generally exempt from inheritance tax (and if someone dies before age 75, they are exempt from income tax too). The Conservatives are rumoured to be considering an inheritance tax cut. This could be in the form of reducing the headline rate from 40%, increasing the threshold for estates exceeding £325,000 or introducing targeted exemptions. Keir Starmer has said Labour would reverse a scrapping of inheritance tax if the Conservatives went ahead with it.
Mansion House reforms
Labour’s Shadow Chancellor, Rachel Reeves, has echoed the current government’s interest in unlocking pensions to support UK economic growth plans, so there is unlikely to be much divergence between the parties on the Mansion House reforms, which are designed to seek ways to incentivise pension funds to invest more in the UK.
‘Pot for life’ or lifetime pensions and pensions dashboards
Proposed by the current Government, which has initiated a call for evidence on the idea of a ‘lifetime pension’ model to help solve the problem of multiple small pots, Labour’s stance on this proposal remains unclear although the party has previously criticised the Conservatives’ delays to the pensions dashboards delivery.
Both Labour and the Conservatives are reportedly eyeing tax cuts as part of their election manifestos. Speculation suggests the Conservatives could consider gradual reductions in income tax, while Labour has ‘hinted’ at tax cuts for higher earners. Tax cuts put more money in people’s pockets, which could be used to plump up pensions. On the other hand, some higher earners pay more into their pensions as a way to reduce their tax bill, so lower income tax could reduce this incentive to use pensions for that purpose.
Becky O’Connor, Director of Public Affairs at PensionBee, said: “Pensions are often subjected to policy changes due to the costs involved to the Treasury of offering tax relief and the State Pension, but also because of the votes won or lost through tinkering with people’s retirement prospects.
The ability for working people to have the opportunity to build a decent pension is a key pillar of a well functioning society and a healthier, wealthier older population reduces many cost burdens on the state. Equally, a recent focus for this Government has been making sure older people do not retire too soon and keep contributing to a growing economy for as long as possible. For all these reasons, there’s a fair chance that pensions will come up in manifesto commitments - particularly the triple lock. But it’s also worth considering how other possible policies being mooted might indirectly impact people’s pension outlook, such as income or inheritance tax cuts.
The PensionBee Pension Confidence Index indicates that faith in the State Pension is one of the key factors behind whether people feel confident in their own retirement outlook or not, with one fifth (22%) of people over the age of 55 who feel negatively about their retirement giving the reason: ‘I don’t trust the Government to maintain a decent state pension’.”