Ahead of Thursday’s general election, PensionBee shares its recommendations for potential changes to the pension landscape under a new government.
Commitment to ‘pot for life’
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “Although not directly mentioned in the Labour or Conservative manifestos, the new government must outline the next steps for the ‘pot for life’ solution to solve the issue of lost pension pots in the UK.
The amount of money being lost track of in old pensions is already eye-watering, with more than £50 billion at risk of being left behind and this figure only projected to rise, as the number of pots accumulated through work rises and with it, the number of lost pensions.
Introducing a pension ‘pot for life’ solution is popular among Brits, with PensionBee research revealing that 75% of savers would consider opting for this model. This popular concept could be relatively easy to introduce, ultimately allowing people to take greater control of their long-term finances.”
Mansion House Reforms
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “As an area of interest for both Labour and the Conservatives, we hope for more detail from the new government on how the Mansion House reforms will support the UK’s economic growth plans while providing positive returns for pension savers.
We hope to get further clarity on how the exposure of people’s pension funds to UK growth opportunities could vary according to how close they are to retirement. This is a crucial consideration for older savers, who typically invest in less risky assets as they approach retirement to protect them from volatility and potentially poorer returns.”
Review of the pensions landscape
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “PensionBee research indicates that Labour’s promise to conduct a comprehensive review of the pensions and retirement savings system is extremely popular (87%) and therefore we would welcome this measure to help pension engagement in the UK.
There has been a worrying increase in pension transfer times in recent years; our analysis of Origo’s recent Pension Transfer Index uncovered a 17% increase over the last three years, rising from an average of 10.7 days in 2020 to 12.5 days in 2023.
To address this issue, we must move away from self-regulation in the pensions industry and implement a ‘10-day Pension Switch Guarantee’. This timeframe aligns with the independent enforcement already undertaken by the Financial Ombudsman Service. These steps are crucial to rebuilding confidence and trust in the pension system, to encourage consumers to take charge of their financial future.”
Extension of Auto-Enrolment
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “In light of Labour’s and the Conservatives’ commitments to maintaining the triple lock on the State Pension, questions around its sustainability for younger savers persist.
With continual doubt cast over the future of the State Pension, it’s more important than ever for people to begin saving as early as possible to ensure they don’t face an income shortfall in later life. We hope the new government continues with plans to extend Auto-Enrolment by scrapping the lower earnings limit for contributions and reducing the enrolment age to 18.
Contributions made earlier in working life can be the most valuable because of the effect of compounding growth.”
Pension tax relief
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “While not confirmed by the Labour party, it has previously called for a flat rate of tax relief on pension contributions.
A flat rate of tax relief of 30%-33% could act as a stronger incentive for basic-rate taxpayers to pay into a pension, without causing too much of a disincentive for higher and additional rate taxpayers currently benefiting from 40% and 45% tax relief on contributions, respectively.
Alternatively, the new government could consider a more radical reform of incentivisation for pension contributions, by changing to a system of ‘top ups’ rather than tax relief, to improve understanding of the benefits of pension saving as well as to potentially create a simpler and better way of delivering those incentives.”
Inheritance tax
Becky O’Connor, Director of Public Affairs at PensionBee, commented: _“Defined contribution pensions are generally free from inheritance tax, meaning beneficiaries won’t pay tax on what is left to them inside a pension. This can act as an incentive to save into pensions and provides peace of mind that hard-earned savings can be used by family members.
While it is worth the new government considering whether this incentive is working as it should, we do not see a need to rush to make any changes here until we can better understand how inheritance tax changes will impact saving behaviours.”_
